LI Judge Strikes Again; Hammers Lender For $100K In Damages, Scraps $119K In Dubious Loan Charges For "Overreaching, Shocking, Unconscionable" Conduct

In Suffolk County, New York, Newsday reports:

• A state judge accused Emigrant Mortgage Co. of premeditated attempts to destroy an East Northport couple's chances of keeping their home, ordering the lender to pay the borrowers $100,000 in damages and scrapping as much as $119,330 in questionable late charges.

***

• [E]migrant waited 14 months before starting a foreclosure case, apparently to rack up penalty fees, [State Supreme Court Justice Jeffrey Arlen Spinner](1) concluded. Then, two months ago, on Feb. 23, the lender offered a loan modification plan and 10 days to accept or reject a proposal whose "deplorable particulars" insulated Emigrant from any liability by violating [homeowners'] state and federal rights, Spinner wrote.

• "This court is driven to the inescapable conclusion that plaintiff has, by way of calculation and premeditation . . . created a scenario whereby it is a virtual certainty that defendants will ultimately be irreparably damaged," he wrote. "In short, the conduct of plaintiff in this matter has been overreaching, shocking, willful and unconscionable."

***

• [W]hat the judge ripped into were the parts that called for the [homeowners] to "unconditionally" agree not to raise any challenges to Emigrant's foreclosure actions, including filing for bankruptcy, if the couple defaults again. The agreement also seems to release Emigrant from federal truth in lending laws, the judge said.

• "This court has never been presented with such a waiver, especially when accompanied by absurd representations [drafted by the lender] that amount to what could best be described as an express warranty that defendants presently are and will forever be insolvent," the ruling read.(2)

For the story, see Lender ordered to pay E. Northport couple $100G (A state judge accused a mortgage company of premeditated attempts to destroy an East Northport couple's chances of keeping their home).

For the ruling, see Emigrant Mtge. Co. Inc. v Corcione, 2010 NY Slip Op 20133 (Sup. Ct. Suffolk County, April 16, 2010).

(1) The story notes that Justice Spinner is the same judge who, back in November, 2009 voided Long Island residents Greg and Diana Yano-Horoski's $292,500 mortgage for similar conduct by the lender (see Indymac Bank F.S.B. v Yano-Horoski, 2009 NY Slip Op 52333(U), November 19, 2009). He had accused IndyMac Mortgage Services of failing to negotiate a loan modification in good faith. The lender's appeal is pending.

Spinner is also the same judge who recently belted Wells Fargo for giving a homeowner facing foreclosure a premature boot (see Long Island Judge Hammers Wells w/ $155K Tab For Oppressive, Heavy Handed, Egregious Conduct For Pre-Sale Lockout Of Homeowner In Foreclosure).

In his ruling, Justice Spinner makes this acknowledgement to a fellow New York trial judge:

• Indeed, my learned and distinguished colleague, Justice Timothy J. Walker, in the matter of Wells Fargo Bank, N.A. v Hughes 2010 NY Slip Op (Supreme Court, Erie County; 1/13/2010) declined to approve a settlement proposal where the Plaintiff failed to act in good faith as required by CPLR § 3408. Regrettably, it is patently clear to this Court that Plaintiff has failed to act in good faith in this matter.

(2) In a recent New Jersey case (see Gonzalez v. Wilshire Credit Corp., DOCKET NO. A-2634-08T2, 988 A.2d 567; 2010 N.J. Super. LEXIS 16 (App. Div. 2010)), the state appeals court found that unfair, deceptive, or unconscionable practices engaged in by a mortgage lender in connection with "negotiating" a one-sided loan modification agreement with a financially strapped homeowner was subject to the provisions of the New Jersey Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -106. See Unfair, Deceptive Practices In Connection With Post-Foreclosure Judgment Loan Workout Negotiations Subject To NJ Consumer Fraud Act.

Northern California Seniors Live In Unwitting Jeopardy Of Getting The Boot As Underwater Elder Care Homes Fall Into Foreclosure

In Northern California, The New York Times reports:

• In September 2009, Sgt. Rick Turini of the Santa Clara County Sheriff’s Office drove to a house in San Jose to carry out a court-ordered eviction. With foreclosures in Bay Area counties near all-time highs, the office had been routinely evicting 35 to 40 households a week. But this property was different: It was a board-and-care home for the elderly.

• Neither the residents nor their families had been warned about an eviction, said Sergeant Turini, who does not recall the home’s exact address. When he arrived with his partner, the house was still occupied, and the distraught daughter of an elderly bedridden woman was struggling to get her mother into a car. A couple of teenagers doing homework in the living room looked up at the officers in shock.

• “We got a call from Adult Protective Services letting us know that the house we were evicting had four or five bedridden residents, and the guy was ignoring the eviction notice,” Sergeant Turini said, referring to the owner. “I couldn’t believe it had gone this far.” He said the sheriff’s department worked with agencies to arrange for the fragile inhabitants to be transferred to other facilities or sent home with relatives.

***

• An analysis of data by The New York Times shows that more than 100 elder-care homes in the Bay Area were under foreclosure in the last six months, and that as many as 700 residents — who often need help with bathing, eating and other daily activities — may have faced eviction.

For more, see When Foreclosure Threatens Elder-Care Homes.

See also, Elder-Care Home Foreclosures, Without Warning.

Revenue For S. Florida Assembly Line Foreclosure Mill Skyrockets To $260M As Media Shines Light On Alleged Sloppy, Fraudulent Document Manufacturing

The Tampa Tribune reports:

• The housing crisis has been very good for Florida's biggest processor of foreclosure lawsuits: Its revenues have skyrocketed to $260 million since the housing bust began. In recent years, the Law Offices of David J. Stern, a Broward County-based foreclosure law firm, has become the largest filer of foreclosure suits in Florida. It also is the biggest filer in Hillsborough County, according to local court records.

• Stern has taken an unusual step by separating his firm's lawyers from its back-office clerks, title insurance workers and other non-legal staff. Stern spun this back-office staff into a publicly traded company called DJSP Enterprises, which must file financial reports with the Securities and Exchange Commission.(1)

***

• Dubbed "foreclosure mills," these firms are known for a factory-like process where most of the legwork of filing lawsuits, researching titles and other duties are handled by clerks and paralegals rather than lawyers. Some judges around Florida have criticized foreclosure mills for sloppy legal work and cutting corners.

• Last week, the Wall Street Journal wrote [see Judge Bashes Bank in Foreclosure Case] about Lynn Tepper, a circuit court judge in Pasco County who accused the Law Offices of David J. Stern and a banking client of submitting a fraudulent document. According to the article, the judge found Stern's office presented a mortgage document with a falsified notary stamp. In an interview with the Tribune Monday, Tepper said it appeared the document had been backdated in order to give a bank legal standing to foreclose on a home.

For more, see Foreclosure firm's revenues jump to $260 million.

(1) In a related story, DJSP Enterprises has signed an agreement to acquire Timios, a national title insurance and settlement services company. Headquartered in Westlake Village, California, Timios is a licensed title insurance and escrow agent operating in 38 States. See Insurance Business Review: DJSP Enterprises Acquires Timios., and DJSP Enterprises, Inc. to Handle Processing for National Foreclosure Alternative Program for Leading Mortgage Lender.

San Jose Man Gets Year in Jail In Loan Modification Ripoff; Cops Plea To Six Felony Counts Of Grand Theft

In Santa Clara County, California, the Contra Costa Times reports:

• [A] 32-year-old San Jose man was sentenced March 30 to one year in jail for six felony counts of grand theft for defrauding homeowners in a loan modification scam, according to the District Attorney's Office.

• Hector Ricardo Esquivel pleaded guilty to charges that he scammed thousands of dollars from homeowners in Santa Clara County and beyond from May 2008 to May 2009, according to the district attorney. Esquivel was arrested in May 2009 after an investigation by San Jose police, and he pleaded no contest on Feb. 11.

• Esquivel was working as a real estate agent after his license had been revoked. He solicited primarily Spanish-speaking homeowners and offered loan modification services, charging thousands of dollars without providing any services. Several homeowners lost their homes to foreclosure, according to the District Attorney's Office. Esquivel also was ordered to pay $23,600 in restitution and is prohibited from working in the real estate or financial sector for the next three years.

Source: 3 charged with defrauding 45 homeowners in mortgage scam.

WV High Court Points To Process Server Screw-Up To Void Judgment; Says Trial Judge Lacked Jurisdiction Where Service Made At Defendant's Mom's Home

In Charleston, West Virginia, The West Virginia Record reports:

• In a case with no lawyers and no plaintiff, the defendant won. On April 1, the Supreme Court of Appeals relieved Barry Dailey of liability from a car crash at a Charleston intersection 10 years ago. The Justices reversed Kanawha County Circuit Judge Paul Zakaib, who ordered Dailey to pay Samantha Beane more than $2,000.

• Dailey, pleading his own case, told the Justices in January that Beane served the suit on his mother in Dunbar[, West Virginia] when he lived in Missouri. Beane didn't appear for oral argument. Her former lawyer, Henry Wood, told the Justices in November that he couldn't find her and wouldn't represent her.

• The Justices reached back to 1909 for authority to void any decree based on substitute service that doesn't strictly comply with requirements. "Moreover, our case law is clear that a court that enters a judgment where there has been insufficient service of process is without jurisdiction to enter said judgment," they wrote.(1)

***

• "From the outset it is important to note that there is absolutely no evidence whatsoever in the record showing that Mr. Dailey resided at his mother's home," they wrote. The return of service could have indicated that her home was his "usual place of abode," they wrote, but it didn't. "Mr. Dailey's mother was not a party to this case and evidence that service was left at her home, in and of itself, is insufficient to effectuate proper service of process," they wrote.(2)(3)

Source: Defendant wins with no lawyers, no plaintiff.

(1) In the court's ruling, Beane v. Dailey, No. 34630, 2010 W. Va. LEXIS 25 (W.V. April 1, 2010), the court made this observation:

• In Jones v. Crim & Peck, 66 W.Va. 301, 66 S.E. 367, 368 (1909), this Court held that:
  
  “Before substituted service can take the place of, and be equivalent to, an actual personal service, all the requirements of the statute regarding the manner of such substituted service must be strictly complied with. . . . Such want of service renders the decrees based thereon absolutely void.”

• (Citations omitted). Moreover, our case law is clear that a court that enters a judgment where there has been insufficient service of process is without jurisdiction to enter said judgment, “and a void judgment or decree is a mere nullity and may be attacked at any time.” Dierkes v. Dierkes, 165 W.Va. 425, 430, 268 S.E.2d 142, 145 (1980). See Syllabus Point 7, Aldrich v. Aldrich, 147 W.Va. 269, 127 S.E.2d 385 (1962) judgment rev'd on other grounds by 378 U.S. 540, 84 S.Ct. 1687, 12 L.Ed.2d 1020 (1964); Syllabus Point 1, Cable v. Cable 132 W.Va. 620, 53 S.E.2d 637 (1949). See also Desmond v. Brennan, 639 A.2d 1351 (R.I.1994); In re Schmidt, 436 N.W.2d 99 (Minn.1989); In re Hall, 173 Mont. 142, 566 P.2d 401 (1977); Smith v. Hatgimisios, 233 Ga. 354, 211 S.E.2d 306 (1974), aff'g 229 Ga. 475, 192 S.E.2d 270 (1972); Shaddrix v. Womack, 231 Ga. 628, 203 S.E.2d 225 (1974); Webster v. Clanton, 259 S.C. 387, 192 S.E.2d 214 (1972).

(Editor's Note: In the context of foreclosure actions, I still can't help wondering:

• how many foreclosure judgments are floating around out there that are "mere nullities" that "may be attacked at any time," and
• how title insurance agents can sleep at night having to insure these crappy land titles coming out of recent foreclosure actions where judges have lacked jurisdiction, whether by reason of a foreclosing lender's: (a) failure to properly serve a defendant with process, or (b) lack of standing to bring the foreclosure action.)

(2) The story goes on to set forth these details that led to the judgment against Dailey. Beane sued Dailey in 2002, over an auto collision that happened in December 2000. His mother, Cheryl Dailey, received a summons at her home in Dunbar, WV. Beane filed a default motion three months later, with an affidavit from Wood attesting to return of service. Judge Zakaib granted the motion but took two years to hold a hearing and three more to decide how much Dailey owed. In 2008, he awarded $1,600 in general damages and $449.86 in reimbursement of medical expenses, plus five years interest. Dailey appealed, writing that he was unaware of any hearing, trial or verdict. He wrote that as of May 2000, he lived at Whiteman Air Force Base in Missouri. He wrote that he was not a West Virginia resident at any point in the proceedings. As a matter of procedure he should have moved to set aside judgment before appealing, but the Justices let it slide because he lacked counsel, the story states.

(3) Since the Court reversed the default judgment entered below based upon insufficient service of process, it stated in its ruling that it was unnecessary to address any potential issues surrounding the Federal law known as the Servicemembers Civil Relief Act (SCRA) in regard to Mr. Dailey's contention that he was a member of the United States Armed Forces. The Court nevertheless issued a reminder to West Virginia trial courts that they are obligated to observe any applicable requirements of the SCRA, found at 50 App. U.S.C.A. §§ 501 et seq., which, according to the court, was enacted on December 19, 2003, as a recodification of the Soldiers' and Sailors' Civil Relief Act of 1940.

NY AG Shuts Down Process Server Outfit For Allegedly Engaging In "Sewer Service" Racket

From the Office of the New York Attorney General:

• Attorney General Andrew M. Cuomo [] announced that his office has shut down a Brockport-based process server company that repeatedly claimed in legal affidavits that its employees had made proper service of legal documents to thousands of consumers when in fact it had not. We Serve It For You served summonses, complaints and other legal documents on individuals on behalf of law firms.

***

• Generally, process servers deliver legal papers via one of three methods: to the defendant personally (actual service), to a person of suitable age and discretion at the location of the intended person to be served (substitute service), or to the door of the intended person’s actual location and by mail to their last known address (“nail-and-mail” service). After providing service to the intended recipient, process servers would print an affidavit of service to prove that they had indeed provided the legal documents to the defendant.

• Attorney General Cuomo’s investigation determined that those documents were regularly signed and mailed to John Coy, who would notarize them without witnessing the signature. From 2007 to 2009, We Serve It For You served approximately 54,000 complaints and maintained a database detailing each service. The Attorney General’s Office and the Unified Court System determined that:
  
  On more than 1,100 occasions, We Serve It For You process servers claimed to have made service or service attempts at two or more places at the same time.
  
  On more than 700 occasions, We Serve It For You process servers claimed to have made service or service attempts before they even received the documents to serve.
  
  On tens of thousands of occasions, John Coy notarized the signatures of We Serve It For You process servers when he did not witness the signatures.

For the New York AG press release, see Cuomo Shuts Down WNY Process Server Company For Lying On Affidavits Of Service ("We Serve it For You” servers claimed to be in two or more places at same time, claimed to serve documents before receiving them; Company and operators must pay $10,000 to state, cooperate with ongoing investigations, and cease process serving).

Alabama Appeals Court: Process Server Screw-Up Leaves Trial Judge w/out Jurisdiction In F'closure Action; Default Judgment Against Pair To Be Vacated

The Alabama Civil Court of Appeals recently reversed a ruling of a lower court that refused to vacate a foreclosure judgment in favor of the Bank of New York ("BNY") on the grounds that the trial court lacked personal jurisdiction over the homeowner-couple, Linda and James Bogus. The issue - a process server screw-up in serving the court papers on the couple facing foreclosure.

• Although BNY's complaint alleged that the Boguses were residents of Shelby County, the record indicates that BNY made no attempt to personally serve the Boguses with process. Rather, the record indicates that, on July 28, 2008, four days after it filed its complaint, BNY attempted to effect service of process on the Boguses by posting the process on the property.

***

• On February 24, 2009, the trial court entered a default judgment against the Boguses. The default judgment awarded possession of the property to BNY and determined that the Boguses had forfeited their right to redeem the property; it did not award any damages.

• On April 10, 2009, the Boguses moved the trial court for relief from the default judgment [...]. As one of their grounds, the Boguses asserted that the default judgment was void because, they said, they had not been personally served with process and, therefore, they said, the trial court lacked jurisdiction to enter the default judgment. Following a hearing, the trial court denied the Boguses' motion for relief from the default judgment. The Boguses timely appealed to the supreme court, which transferred the appeal to this court [...].

***

• Th[e] statute requires that a defendant who is a resident of the State of Alabama be served personally unless he or she cannot be found. In the case now before us, the record indicates that BNY did not make any attempt to serve the Boguses personally. Consequently, BNY's attempt to serve the Boguses by posting the process on the property did not comply with the service-of-process provisions [...]. Therefore, BNY did not validly serve the Boguses [...].

• Accordingly, we reverse the trial court's denial of the Boguses' [] motion [to vacate a default judgment] and remand the action to the trial court for further proceedings consistent with this opinion.

For the ruling, see Bogus v. Bank of New York, No. 2081195 (Ala. Civ. App. April 16, 2010).

Manager Of Foreclosure Consulting Outfit Bagged & Held On $1M Bail; Accused Of Pocketing Upfront Cash From Homeowners In Or Nearing Mortgage Default

In Los Angeles, California, the Santa Maria Times reports:

• The manager of a Los Angeles-based foreclosure consultant organization with an office in Santa Maria has been arrested on suspicion of violating rights of residents whose homes were in or nearing default. Irma Diaz, 41, of Hacienda Heights was arrested by Santa Barbara County District Attorney’s Office investigators Thursday in Los Angeles County. She was booked into Los Angeles County Jail with bail set at $1 million, according to the District Attorney’s Office.

***

• Diaz currently is facing two felony counts of committing prohibited foreclosure practices involving one alleged victim, but investigators believe there are more victims. “We suspect that there are many other victims out there, and the investigation is continuing,” said Dave Tonello, supervising investigator with the District Attorney’s Office.

• Investigators suspect Diaz took part in a scam where victims paid her money to refinance their homes, but she didn’t complete the process, according to Tonello. Her bail was set so high because authorities consider Diaz at risk of fleeing, he said.

For the story, see Foreclosure manager faces felony charges.

Go here for the Santa Barbara County DA press release.

Schack Hammers Attorney For Failure To Cancel Foreclosure Action After Delinquent Mortgage Was Paid Off & Subject Property Sold In Private Sale

In Brooklyn, New York, state court Justice Arthur M. Schack hammered another foreclosure attorney in a recent ruling for allowing a foreclosure action to continue despite the fact that the property owner had sold the subject property and paid off the delinquent mortgage over a year ago. Justice Schack stated the folowing (bold text and alterations [...] added, not in the original text):

• On April 6, 2010, I searched ACRIS [the Automated City Register Information System] and discovered that WELLS FARGO executed a satisfaction of the instant mortgage more than ten months ago, on May 20, 2009. The satisfaction was recorded at the Office of the City Register of the City of New York, on June 1, 2009, [...]. Further, ACRIS revealed that defendant HUNTE sold the premises to Milton R. Linguard for $610,000.00, with the deed executed on March 13, 2009. The deed was recorded on June 16, 2009, at the Office of the City Register of the City of New York, [...]. ACRIS also revealed that Mr. Linguard, on March 13, 2009, borrowed $518,500.00 from GOLDEN FIRST MORTGAGE CORP. This was secured by a mortgage recorded at the Office of the City Register of the City of New York, on June 16, 2009, by MERS, as nominee for GOLDEN FIRST MORTGAGE CORP., [...].

• Plaintiff's counsel never had the courtesy to notify the Court that the instant mortgage was satisfied and file a motion to discontinue the instant action. The Court is gravely concerned that: it expended scarce resources on an action that should have been discontinued; and, would have signed an order that could have possibly damaged the credit rating of defendant HUNTE and put an unfair cloud on the title to the subject premises now owned by Mr. Linguard, causing both defendant HUNTE and Mr. Linguard much time and effort to correct an error caused by the failure of plaintiff's counsel to exercise due diligence. The Court notes that [foreclosure attorney Peter G.] Zavatsky, in his affirmation for an award of attorneys' fees, requests that this Court award him $3,000.00 because, he states in ¶ 8 of his affirmation, that he has "been admitted to the Bar of the State of New York for more than thirty (30) years and have devoted my practice to real estate litigation and mortgage foreclosure practice for that entire time . . . and I have lectured on the subject of mortgage foreclosures."

***

• The failure of Peter G. Zavatsky, Esq., and his firm, Zavatsky, Mendelsohn & Levy, LLP, to discontinue the instant action since the payoff of the HUNTE mortgage in 2009 appears to be "frivolous." 22 NYCRR §130-1.1 (a) states that "the Court, in its discretion may impose financial sanctions upon any party or attorney in a civil action or proceeding who engages in frivolous conduct as defined in this Part, which shall be payable as provided in section 130-1.3 of this Subpart." Further, it states in 22 NYCRR §130-1.1 (2), that "sanctions may be imposed upon any attorney appearing in the action or upon a partnership, firm or corporation with which the attorney is associated."

It appearing that foreclosure attorney Peter G. Zavatsky, and the Zavatsky, Mendelsohn & Levy, LLP law firm, engaged in "frivolous conduct," and that pursuant to the applicable court rules "[a]n award of costs or the imposition of sanctions may be made . . . upon the court's own initiative, after a reasonable opportunity to be heard," Justice Schack scheduled a hearing affording Mr. Zavatsky and his law firm "a reasonable opportunity to be heard," before deciding whether to hammer them with sanctions for their apparent screw-up in allowing the foreclosure action to proceed, despite the fact that the delinquent mortgage was paid off, a mortgage satisfaction was recorded in the public records, and the subject property was sold off to a third party in a private sale.

For the ruling, see Wells Fargo Bank, N.A. v Hunte, 2010 NY Slip Op 50637 (NY Sup. Ct. Kings County April 14, 2010).

Central Florida Judge Blasts Foreclosure Mill Law Firm For Filing "Fraudulently Backdated" Document "In A Purposeful, Intentional Effort To Mislead"

In Central Florida, The Wall Street Journal reports:

• A Florida state-court judge, in a rare ruling, said a major national bank perpetrated a "fraud" in a foreclosure lawsuit, raising questions about how banks are attempting to claim homes from borrowers in default. The ruling, made last month in Pasco County, Fla., comes amid increased scrutiny of foreclosures by the prosecutors and judges in regions hurt by the recession. Judges have said in hearings they are increasingly concerned that banks are attempting to seize properties they don't own.

• The Florida case began in December 2007 when U.S. Bank N.A. sued a homeowner, Ernest E. Harpster, after he defaulted on a $190,000 loan he received in January of that year. The Law Offices of David J. Stern, which represented the bank, prepared a document called an "assignment of mortgage" showing that the bank received ownership of the mortgage in December 2007. The document was dated December 2007.

• But after investigating the matter, Circuit Court Judge Lynn Tepper ruled that the document couldn't have been prepared until 2008. Thus, she ruled, the bank couldn't prove it owned the mortgage at the time the suit was filed. The document filed by the plaintiff, Judge Tepper wrote last month, "did not exist at the time of the filing of this action…was subsequently created and…fraudulently backdated, in a purposeful, intentional effort to mislead." She dismissed the case.

• Forrest McSurdy, a lawyer at the David Stern firm that handled the U.S. Bank case, said the mistake was due to "carelessness." The mortgage document was initially prepared and signed in 2007 but wasn't notarized until months later, he said. After discovering similar problems in other foreclosure cases, he said, the firm voluntarily withdrew the suits and later re-filed them using appropriate documents.

• "Judges get in a whirl about technicalities because the courts are overwhelmed," he said. "The merits of the cases are the same: people aren't paying their mortgages."(1)

***

• At an unrelated hearing in a separate matter last week, Anthony Rondolino, a state-court judge in St. Petersburg, Fla., said that an affidavit submitted by the David Stern law firm on behalf of GMAC Mortgage LLC in a foreclosure case wasn't necessarily sufficient to establish that GMAC was the owner of the mortgage. "I don't have any confidence that any of the documents the Court's receiving on these mass foreclosures are valid," the judge said at the hearing.(2)

For the story, see Judge Bashes Bank in Foreclosure Case.

For Judge Tepper's dismissal and the "fraudulently backdated" (Judge Tepper's words, not mine) document in question, see U.S. Bank v. Harpster.

(Note: In paragraph 13 of the Judge Tepper's dismissal, the court also declared that the Defendant/homeowner was the prevailing party in this litigation and, accordingly, is entitled to an award of attorney's fees and costs, to be imposed against the Plaintiff/lender, and to be determined in a future evidentiary hearing before the Court).

(1) What foreclosure mill attorney McSurdy conveniently seems to ignore (when reportedly making these ridiculous statements) is that when a plaintiff files a lawsuit, the merits of the case (whatever they may be) are irrelevant and remain irrelevant unless and until the plaintiff can first overcome the procedural hurdles of establishing that it has a right to file the case in the first place. For example, in a recent ruling [see Wells Fargo Bank, N.A. v Hunte, 2010 NY Slip Op 50637 (Sup. Ct. Kings County, April 14, 2010)], Brooklyn, NY Justice Arthur M. Schack reminds us of this basic tenet with this excerpt (bold text is my emphasis, not in the original text):

• The Court of Appeals (Saratoga County Chamber of Commerce, Inc. v Pataki, 100 NY2d 801, 812 [2003], cert denied 540 US 1017 [2003]) declared that "[s]tanding to sue is critical to the proper functioning of the judicial system. It is a threshold issue. If standing is denied, the pathway to the courthouse is blocked. The plaintiff who has standing, however, may cross the threshold and seek judicial redress."

(2) For the transcript of this hearing, see GMAC Mortgage LLC v. Visicaro.

Central Florida Foreclosure Rescue Operator Cops Plea In Racket That Targeted House-Rich, Cash-Poor Owners In Home Equity Ripoff

In Tampa, Florida, the Bradenton Herald reports:

• The reputed ringleader of a foreclosure-rescue scam that operated in Manatee County and elsewhere in Florida now is facing more federal prison time. Peter James Porcelli II, also known as Peter James, pleaded guilty in a Tampa federal courtroom Thursday to one count of mail fraud in connection with the rescue scheme, U.S. Attorney A. Brian Albritton said Friday.

***

• He initially was charged with fleecing 56 distressed homeowners, including three in Manatee and four from Sarasota County, out of more than $1.8 million, court records show. Porcelli recruited those homeowners through Safe Harbour Foundation of Florida Inc., a Clearwater outfit that misrepresented itself as a nonprofit corporation dedicated to helping homeowners avoid foreclosure, prosecutors said.

• It combed public records to target homeowners facing foreclosure and send mailers that offered “immediate relief from financial pressures” and a “guaranteed solution to stay in your home,” among other promises. Homeowners who called the number on the flyer reached Porcelli or one of his associates, who asked questions to determine how much equity the homeowner had. If it was a significant amount, homeowners would be referred to Silverstone Lending LLC or Silverstone Financial LLC — both also controlled by Porcelli — to take out six-month loans to get the mortgage up to date, authorities said.

• But those loans often charged the state maximum of 18 percent interest and numerous fees that often exceeded 60 percent of the loan amounts.(1) The loan terms also gave Silverstone the power to take the home if the borrower defaulted, authorities said.

For the story, see Foreclosure-rescue scammer facing 20 years in prison.

(1) See also, The Tampa Tribune: Pinellas telemarketer pleads guilty to mail fraud:, which reports that of the total money the homeowners purportedly orrowed, they received less than 38 percent of that loan money, and they ended up owing Porcelli or his companies the remainder in fees and costs.

Three Charged For Allegedly Pocketing $10K Per Victim In Bogus "Principal Reduction" Loan Mod Racket; Part Of Larger Scam That Clipped 400 Homeowners

In Santa Clara County, California, the Contra Costa Times reports:

• A Santa Clara County criminal grand jury has indicted three people on 83 counts of defrauding 45 homeowners in Northern California in a wide-ranging loan modification scam. The Santa Clara County District Attorney's Office alleges Rene Alvarez, 39, and Mariano Ortega, 34, both of San Jose, and Cydney Sanchez, 60, of Los Angeles, stole more than $2 million from more than 400 homeowners — most of them Latino — in seven states, most of them from California.

• The grand jury found that in 2008 and 2009, Alvarez and Ortega owned and operated M & R Contemporary Solutions, a Campbell foreclosure consulting firm, according to prosecutors, and Sanchez owned and operated West Coast Mortgage and Horizon Property Holdings of Beverly Hills.

• Prosecutors contend M & R lured homeowners who were in various stages of the foreclosure process by pitching a "principal reduction" program. Homeowners were told M & R would save their homes by facilitating the purchase of their existing lender's loan by a third party at a discounted price. Sanchez was then supposed to provide the investors to purchase the loans. The homeowners were to be offered a new reduced-principal loan that would have significantly lower monthly payments.

• According to the homeowners and several ex-employees of M & R who testified before the grand jury, no homeowners were ever helped in this manner. In many cases, prosecutors say, homeowners paid $10,000 for the loan-buying scheme even though they had already lost title to their homes through trustee sales. M & R collected thousands of dollars in upfront fees from each homeowner in foreclosure, which is a felony, prosecutors said.

Source: 3 charged with defrauding 45 homeowners in mortgage scam.

For the Santa Clara County DA press release, see Santa Clara County Criminal Grand Jury Indicts Three in More Than Two Million Dollar Loan Modification Scam.

California Man Cops Plea For Role In Bid-Rigging At Foreclosure Sales

In Sacramento, California, The Stockton Record reports:

• A 43-year-old Stockton man pleaded guilty Friday to rigging bids at public real estate auctions in San Joaquin County over a six-month period in 2009. Anthony B. Ghio, 43, admitted in U.S. District Court that he conspired with a group of real estate speculators who agreed not to bid against each other at selected foreclosure auctions as a way to suppress competition, thus keeping prices artificially low.(1)

• According to court documents:
  
  (1) After the conspirators' designated bidder bought a property at a public auction, there would be a second, private auction.
  
  (2) Each participant would then submit higher bids at the private auction.
  
  (3) The conspirator who bid the highest amount in the second auction won the property. The difference between the noncompetitive price at the public auction and the winning bid in the second auction was the group's illicit profit - and that amount was divided among them.

For the story, see Stocktonian admits to bid-rigging land scheme (Man faces 10 years in prison, $1 million fine).

For the U.S. Attorney (Sacramento, California) press release, see California Real Estate Executive Pleads Guilty to Bid Rigging.

Go here for other posts on foreclosure sale bid-rigging.

(1) Ghio is charged with bid rigging, a violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million fine.

Feds Charge Goldman Sachs With Fraud In Civil Suit In Connection With The Manufacturing & Peddling Of Subprime Mortgage Securities

In New York City, The Associated Press reports:

• The government has accused Goldman Sachs & Co. of defrauding investors by failing to disclose conflicts of interest in mortgage investments it sold as the housing market was collapsing. The Securities and Exchange Commission said in a civil complaint Friday that Goldman failed to disclose that one of its clients helped create -- and then bet against -- subprime mortgage securities that Goldman sold to other investors.

• The SEC said the fraud, a blow to the reputation of Wall Street's most powerful firm, was orchestrated in 2007 by a Goldman vice president then in his late 20's. The employee, Fabrice Tourre, has since been promoted to executive director of Goldman Sachs International in London.

• Tourre, the SEC said, boasted to a friend that he was able to put such deals together as the mortgage market was unraveling in early 2007. In an email to the friend, he described himself as "the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!"

For more, see SEC Accuses Goldman Sachs Of Civil Fraud.

For the Securities and Exchange Commission press release, see SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages:

• "The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, Director of the Division of Enforcement. "Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party."

For the SEC lawsuit, filed in a Manhattan Federal District Court, see Securities And Exchange Commission v. Goldman Sachs & Co., et ano.

Sale Leaseback Deal A Constructively Fraudulent Transfer, Violated State Consumer Protection Act, Says Judge In Granting $244K+ Triple Damage Award

In a recent ruling from a U.S. Bankruptcy Court in Boston, Massachusetts, 3 individuals and one company were found liable for the return of over $81,000 in home equity that was pocketed from a couple facing foreclosure in a sale leaseback, foreclosure rescue arrangement which was found to constitute a constructively fraudulent transfer under sections 548 and 550 of the U.S. Bankruptcy Code.(1)

In addition, as a result of a default in the case by the company involved and one of the individuals who failed to show up to the trial to defend himself, the court found them liable for violating the Massachusetts Consumer Protection Act [Mass. Gen. Laws ch. 93A]. Accordingly, it assessed an award in favor of the Bankruptcy Trustee (who brought the lawsuit on behalf of the bankruptcy estate) in the amount of $244,513.11, which represents triple damages allowed under state law, and is based on the amount of the home equity ripoff ($81,504.37 x 3).

For the ruling, see Lassman v. Reilly (In re Feeley), Chapter 7, Case No. 06-13582-JNF, Adv. P. No. 07-1201 (Bankr. D. Mass., April 13, 2010).

(1) In this regard, the court observed:

• Under section 548(a)(1)(B), the trustee must prove the following elements: "(1) a transfer of the debtor's property or interest therein; (2) made within one year of the filing of the bankruptcy petition; (3) for which the debtor received less than a reasonably equivalent value in exchange for the transfer; and (4) either (a) the debtor was insolvent when the transfer was made or was rendered insolvent thereby. . . ." In re Cahillane, 408 B.R. at 188-89 (citations omitted). Additionally, the trustee must prove each element by a preponderance of the evidence. Id. at 189 (citing, inter alia, Frierdich v. Mottaz, 294 F.3d at 867). See also Tomsic v. Pitocchelli (In re Tri-Star Techs. Co., Inc.), 260 B.R. 319 (Bankr. D. Mass. 2001).

***

• Having found that the Trustee is entitled to avoid the transaction, section 550 permits the trustee to recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from "the initial transferee of such transfer [Reilly] or the entity for whose benefit such transfer was made [the remaining defendants]." 11 U.S.C. § 550(a)(1). In his Amended Complaint, the Trustee did not specify which alternative he sought, but in his Memorandum, the Trustee clarified that he is seeking the value of the property transferred, namely the Debtors' equity which equaled $81,504.37 on March 29, 2006.

(Note that the sale leaseback deal was consummated between the homeowners and the foreclosure rescue operators on March 29, 2006, which was at or near the height of the recent real estate boom/bubble. Between that time and now, the value of the home has presumably suffered a significant loss in value. Given that, when filing a lawsuit to unwind or undo this type of home equity scam, a decision must be made (typically by the screwed over homeowner, or in this case, the bankruptcy trustee) whether to seek to restore the property title in the name of the homeowner, or allow the foreclosure rescue operator (or whoever the current homeowner is) to keep the house and, instead, seek financial damages for the amount of the home equity ripoff, it may be in the homeowner's best interest to opt for the financial damages (assuming, of course, that the foreclosure rescue operators have deep enough pockets to cough up the cash to cover the court's damage award). This may be especially true if the homeowner is in a state/jurisdiction that has a consumer protection statute that provides for a recovery of triple damages. In this case, the amount of the $81,000+ in recoverable damages (increased to $244,000+ with respect to two of the defendants for violating the Massachusetts Consumer Protection Act) was calculated based on the home's value on March 29, 2006 (the day the ripoff was consummated). Had the Bankruptcy Trustee sought recovery of the home itself, the bankruptcy estate would be getting back the home at today's (presumably significantly lower) worth, encumbered by a mortgage debt that may exceed the home's now-lesser value.

It appears that, when seeking to unwind or undo one of these sale leaseback, foreclosure rescue scams that was consummated at or near the height of the recent real estate boom/bubble, the victim - and the victim's attorney - must "be careful what they ask for" and exercise great care with respect to the specific remedy they seek, the way (I suspect) the Bankruptcy Trustee did in this case (or maybe he just got real lucky).)

Sale Leaseback Foreclosure Rescue Scams & The Bona Fide Purchaser Doctrine In Pennsylvania

In a recent story in The Philadelphia Inquirer on Chester County homeowner Melissa Miller who was victimized out of an estimated $140,000 in equity in a sale leaseback foreclosure rescue scam (see Mortgage scheme costing Chesco woman her home), a reference was made to her apparent failed attempt to undo the ripoff through the filing of a civil lawsuit:

• [Bruce] Baldwin, Miller's attorney, said the [straw buyers] did not respond to JPMorgan Chase's foreclosure action on [Miller's] house, or to a suit he filed in Chester County Court on Miller's behalf "against all the parties involved," including the [straw buyers] and Washington Mutual [the lender who, presumably unwittingly, financed the foreclosure rescue ripoff].

• Based on the evidence, Baldwin said, County Judge Robert Shenkin, while agreeing that both Miller and Washington Mutual had been "innocent victims of fraud," determined in December that the burden of loss fell on Miller because she had agreed to the arrangement.

It is arguable whether any mortgage lender who, albeit unwittingly, finances a foreclosure rescue ripoff where the victimized homeowner remains in possession of the premises is an innocent victim of the fraud.

The general rule in Pennsylvania, based on its state case law, is clear that, prior to making a loan secured by real estate, a mortgage lender has an obligation to determine whether the premises is in the possession of one other than the actual borrower/mortgagor and, if so, to make the appropriate inquiries into the legal rights and equities of those in occupancy. Failure to do so may lead to the imputation of constructive notice on the mortgage lender of the fraud.(1)

It appears that, in this case (and in most cases), the lender financing the scam failed to satisfy its obligation. In such an event, the mortgage lender is arguably not entitled to status as a bona fide purchaser and, accordingly, arguably not entitled to the recording statutes, thereby leaving its interest in the premises subject to being voided by the victimized homeowner.(2)(3)

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

(1) In Woods v. Farmere, 7 Watts 382, 1838 Pa. LEXIS 94 (1838), the court stated:

• The duty of inquiring into the foundation of a notorious possession is not a grievous one, [... .] [T]he doctrine of constructive notice is undoubtedly a sharp one; but it is not more so in regard to a notorious possession than it is in regard to a registry. Nor is it less reasonable; for it certainly evinces as much carelessness to purchase without having viewed the premises, as it does to purchase without having searched the register.

In Kinch v. Fluke, 311 Pa. 405, 166 A. 905 (1933), the court observed:

• Such possession is evidence of title, and, in a certain sense, is a substitute for recording the agreement of purchase, and is sufficient to put a subsequent purchaser or mortgagee on inquiry: Hottenstein v. Lerch, 104 Pa. 454; Lord's App., 105 Pa. 451; Rowe v. Ream, 105 Pa. 543; White v. Patterson, 139 Pa. 429.

• A prospective purchaser is required to make inquiry of those in possession, and failing to do so, is affected with constructive notice of all that such inquiry would have disclosed: Stonecipher v. Keane, 268 Pa. 540; Lazarus v. Lehigh & W.-B. Coal Co., 246 Pa. 178; Ohio R. Junc. R.R. Co. v. Pa. Co., 222 Pa. 573; Jamison v. Dimock, 95 Pa. 52.

• The notice of possession which the law imposes on a subsequent vendee or mortgagee without regard to whether he has actual knowledge or not, is of such character that it cannot be controverted. The means of knowledge which possession affords is regarded as the legal equivalent of actual notice: Rowe v. Ream, supra, at 546.

In Sidle v. Kaufman, 345 Pa. 549, 29 A.2d 77 (1942), the court stated the following:

• It is well settled that purchasers and mortgagees of real estate are affected not only by matters of which they had actual knowledge and by what appeared in the office of the recorder of deeds and in the various courts of record whose territorial jurisdiction embraced the land in dispute, but as well "by what they could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect the title": Salvation Army Inc. Tr. v. Lawson, 295 Pa. 459, 463. See also Kinch v. Fluke, 311 Pa. 405, 408; Driebe v. Fort Penn Realty Co., supra, 318; Koubek v. Tenos, 343 Pa. 409, 412.

In Malamed v. Sedelsky, 80 A.2d 853, 367 Pa. 353 (Pa. 1951), this statement was made by the court:

• [I]t has long been settled that it is the duty of a purchaser of real property to make inquiry respecting the rights of the party in possession and failing to do so they are affected with constructive notice of such facts as would have come to his knowledge in the proper discharge of that duty: Lazarus v. Lehigh and Wilkes-Barre Coal Co., 246 Pa. 178, 184, 92 A. 121 (1914); Atlantic Refining Co. v. Wyoming Nat. Bank, 356 Pa. 226, 236, 51 A. 2d 719 (1947); Sidle v. Kaufman, 345 Pa. 549 557, 29 A. 2d 77 (1942); Kinch v. Fluke, 311 Pa. 405, 166 A. 905 (1933)

• This has been the law as far back at least as Woods v. Farmere, 7 Watts 382, 387 (1838), where it was said by Chief Justice GIBSON, at p. 387, "... it certainly evinces as much carelessness to purchase without having viewed the premises, as it does to purchase without having searched the register."

In Mid-State Bank & Trust Co. v. Globalnet Int'l, Inc., 557 Pa. 555; 735 A.2d 79 (1999), the Pennsylvania Supreme Court continued its recognition of the duty of purchasers and mortgagees to make the appropriate inquiries of those in possession of the premises in which they are acquiring an interest in by making this statement:

• A party is on constructive notice of another's interest in real property where the party "could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect title, and also by what appeared in the appropriate indexes in the office of the recorder of deeds." Lund v. Heinrich, 410 Pa. 341, 346, 189 A.2d 581, 584 (1963).

(2) As recently as March 3, 2010, a U.S. Bankruptcy Court in Philadelphia (in applying Pennsylvania case law) ruled that a lender who (presumably unwittingly) financed a foreclosure rescue scam involving a sale leaseback arrangement was not a bona fide purchaser and not entitled to the protection of the Pennsylvania recording statute. Consequently, the court voided the lender's mortgage (although it did grant it an equitable lien to the extent of the approximate unpaid balance owed by the victimized homeowners on their existing mortgage loan immediately prior to the ripoff - no lien was granted for the amount by which the new loan that financed the scam exceeded the existing loan).

Among other things, the court, in In re Fowler, Chapter 13, Bky. No. 07-11692ELF, Adv. No. 07-00139ELF (Bankr. E.D. Pa. March 3, 2010), made this statement (among others) recognizing the following general rule in Pennsylvania on the bona fide purchaser doctrine:

• [i]t is well settled that purchasers and mortgagees of real estate are affected not only by matters of which they had actual knowledge and by what appeared in the office of the recorder of deeds and in the various courts of record whose territorial jurisdiction embraced the land in dispute, but as well by what they could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect the title. Sidle v. Kaufman, 345 Pa. 549, 29 A.2d 77, 82 (Pa. 1942) (emphasis added) (internal quotations omitted).

For more on the bona fide purchaser doctrine in Pennsylvania, see:

• Pennsylvania Bona Fide Purchaser, Possession, Duty To Inquire,
• Pennsylvania Bona Fide Purchaser, Possession, Duty To Inquire - Federal Cases.

For other states, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.

(3) A 2009 ruling by a Federal District Court in Chicago ruled, in applying Illinois law, that a mortgage lender who financed a foreclosure rescue scam (where the victimized homeowner remained in possession of his home throughout the relevant time period) was not entitled to status as a bona fide purchaser and, consequently, not entitled to protection of the state recording statutes. See Lender's Failure To Inquire Into Possession Disqualifies It For Bona Fide Purchaser Protection In Suit To Undo Foreclosure Rescue Sale Leaseback Scam.

Support for imputing constructive notice in the application of the bona fide purchaser doctrine on a mortgage lender in situations where a property owner remains in possession of premises conveyed to another, after which the grantee obtains a mortgage loan secured thereby, has been around for over 140 years - it is certainly not a new phenomenon - as evidenced by this excerpt from a ruling from the California Supreme Court in Pell v. McElroy, 36 Cal. 268, 1868 Cal. LEXIS 186 (1868) (bold text is my emphasis, not in the original text):

• An absolute deed divests the grantor not only of his legal title, but right of possession; and when such grantor is found in the exclusive possession of the granted premises long after the delivery of his deed, here is a fact antagonistic to the fact and legal effect of the deed; and we cannot appreciate the justice, sound reason, or policy of a rule which would authorize a subsequent purchaser, while such fact of possession continues, to give controlling prominence to the fact and legal effect of the deed, in utter disregard of the other notorious prominent antagonistic fact of exclusive possession in the original grantor. He cannot be regarded a purchaser in good faith who negligently or willfully closes his eyes to visible pertinent facts, indicating adverse interest in or incumbrances upon the estate he seeks to acquire, and indulges in possibilities or probabilities, and acts upon doubtful presumptions, when by the exercise of prudent, reasonable diligence he could fully inform himself of the real facts of the case.

***

• The continued exclusive possession of a vendor after his formal conveyance of the legal title is a fact in conflict with the legal effect of his deed, and is presumptive evidence that he still retains an interest in the premises, and is sufficient to put a purchaser upon inquiry, and subject him to the general rule heretofore announced in case of the party in possession being a stranger to the title as of record.

Oregon Regulators Taking A Close Look Into Portland-Based Foreclosure Rescue Operator Peddling Sale Leaseback Programs

A recent story in The Oregonian [see State regulators open civil investigation into Aspen Capital's mortgage affiliate] reports that the Oregon Department of Consumer and Business Services has commenced a civil investigation into the lending and foreclosure rescue activities of an affiliate of Aspen Capital for possible violations of consumer protection laws. The type of transactions being looked into include sale leaseback programs, an example of which was described in the following excerpt taken from a February 27, 2010 Oregonian story [see Foreclosure rescues by Aspen Capital affiliate -- a lender of last resort -- failed nearly half the time]:

• Tammy Campbell was distraught. She couldn't find a job and fell behind on her mortgage in 2004. The modest Portland home she bought for its archways and oak floors headed to foreclosure. That's when she got a flier in the mail from an Aspen affiliate. Campbell signed a contract to sell her home to another Aspen affiliate just days before the foreclosure sale.

• The $109,750 price was below market value, but it was enough to pay off her delinquent loan. The good part: The sale halted the foreclosure and Campbell stayed in her home, renting from an Aspen affiliate. The bad part: She no longer owned her home and her rent cost her more than her old monthly mortgage payment.

• According to the contract, Campbell paid $719 rent compared with $599 on her mortgage. Irving Potter, lawyer for Aspen Capital and its affiliates, said the company didn't consider whether Campbell could afford the rent. Instead, he said, the company set the rent to ensure an 8 percent annual return. Even though she no longer owned the home, Campbell was required by the contract to pay the maintenance and property taxes. Potter said the company ended up covering the taxes.

• The Aspen affiliate gave Campbell the option to buy her home back. The price would rise 10 percent a year. Under the contract, the company could put the home on the market if Campbell couldn't buy it back after two years. By buying the home for less than it was worth, the company would profit by selling at market value.

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

Under Oregon case law, this type of transaction has been found by the courts to constitute an equitable mortgage(1), an arrangement where a loan transaction is disguised as a formal sale, combined with:

• a contemporaneous leaseback of the premises by the financially strapped property owner, and
• an option to repurchase granted to the property owner.

Disguising a loan transaction in this way is believed by some (erroneously, in many cases) to be a way to: (1) evade state usury statutes, (2) evade the property owner's right of redemption by obviating a foreclosure action - in a sale leaseback, the new owner need only evict the now-ex-homewoner to take possession of the premises, and (3) make off with a distressed property owner's equity by providing for contractual obligations so onerous that they are unconscionable and illusory, coupled with hair-trigger default provisions that result in the property's forefeiture to the operator.

Inasmuch as these types of transactions have been under attack by several other states(2) as being in violation of state consumer protection laws, it would be interesting to see where Oregon regulators come out on this issue.(3)

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

(1) The Oregon Supreme Court, in Umpqua Forest Ind. v. Neenah-Ore. Land Co., 188 Or 605, 217 P2d 219 (1950), pointed to the following factors as indicia that a mortgage, as opposed to a true sale, was intended:

• the fact that negotiations originated from an application for a loan,
• the dire financial straits of the grantor,
• the grantor's continued possession of the property,
• the intimate business or social relationship of the parties,
• failure of the grantee to carefully investigate the title of the grantor,
• failure of the grantee to ascertain the value of the property,
• inadequacy of consideration, and
• the lack of bargaining between the parties as to the value of the property with the controlling consideration being the profit inuring to the grantee.

Further indication of intent to create a mortgage is present is: when a deed absolute in form, is accompanied by an option to repurchase, the instruments must be considered together. The option does not of itself convert the transaction into a mortgage, but it is a circumstance to be considered in favor of the existence of a mortgage.

See also these Oregon Court of Appeals rulings which applied these guideposts in evaluating a real estate transaction and concluding that it was an equitable mortgage, and not true sale:

• Long v. Storms, 50 Or App 39 (1981) (ruled that, as an equitable mortgage, the arrangement was subject to the Federal Truth In Lending Act),
• Swenson v. Mills, 198 Ore. App. 236, 108 P.3d 77 (Or. Ct. of App. 2005).

This short narrative on the equitable mortgage doctrine in Oregon, appearing on the State of Oregon Division of Finance and Corporate Securities (DFCS) website, also addresses the equitable mortgage doctrine in Oregon.

(2) In Massachusetts, the state Attorney General's office sued and reached a settlement in a case involving 26 real estate transactions that allegedly: (1) involved unfair and deceptive acts and practices under the Massachusetts Consumer Protection Act, and (2) constituted violations of specific state and federal laws and regulations designed to protect consumers from deceptive and unconscionable lending practices. Among the AG's allegations was that the sale leaseback arrangements constituted usurious equitable mortgages. See:

• Commonwealth of Massachusetts v. Sohmer - Amended Complaint,
• Motion to Approve Settlement Agreement,
• Settlement Agreement,
• Massachusetts AG press release: Bankruptcy Court Approves Settlement Between Attorney General’s Office and Ten Mortgage Lenders and Servicers Involved in Foreclosure Rescue Transactions.

In Arizona, Attorney General Terry Goddard successfully sued an alleged foreclosure rescue operation believed to have defrauded a couple of hundred Arizonans of their homes in violation of, among other statutes, the Arizona Consumer Fraud Act, and alleged that the sale leasebacks were equitable mortgages. See:

• AG press release: Terry Goddard Files Lawsuit to Stop Foreclosure Rescue Operation,
• Lawsuit: State of Arizona v. Winer, et al.,
• Consent Judgment - State of Arizona v. Winer, et al.,
• AG press release: Goddard Wins $1.37 Million for Consumers in Two Mortgage Fraud Cases,
• 400 Sale Leasebacks Are Disguised Equitable Mortgages, Says AZ AG In Invoking State Consumer Fraud Act, TILA In Suit Against Foreclosure Rescue Firm.

The Arizona Attorney General also scored a victory in an earlier case (see Arizona Foreclosure Rescue Operator Ordered To Pay $1.2M In Home Sale, Leaseback Program) in which a foreclosure rescue operator, in lending money to more than 60 homeowners facing foreclosure or in need of money, designed its loans, which it called reverse sales, to evade laws protecting mortgage borrowers by structuring them as an outright sale of the property by the borrower, who then rented back the home with an option to repurchase it. If homeowners were late on a rental payment or unable to repay the loan and funding fee within two years, they could lose their homes and any equity in them. For the Arizona AG press release, see Court Orders Realty Firm to Pay $1.2 Million for Violating Fraud, Banking Laws.

In Washington, the state Attorney General’s Office successfully sued a notorious foreclosure rescue operator, and obtained a court order directing the operator to pay more than $3.2 million to victims he wronged plus $179,000 in penalties for violating the state's Consumer Protection Act. See:

• AG press release: Pay time for notorious foreclosure rescue scammer (Attorney General announces major victory in state’s case with Washington man who promised help but took homes),
• Trial Judge's Findings of Fact and Conclusions of Law – Feb. 6, 2009,
• Lawsuit: State of Washington v. Kaiser, et al.

(3) For other reports on sale leaseback, foreclosure rescue programs that have been found to violate the state's consumer protection laws, see: State Consumer Fraud Act Yields Triple Damages Award For Homeowners In Bogus Sale Leaseback Equity Stripping Racket, footnote 1.

California Lawmaker Moves To Elevate Crime Of Landlord Impersonation To Felony Grand Theft

The San Francisco Chronicle reports:

• The glut of vacant foreclosed homes has inspired con artists to concoct a new scam: posing as landlords to swindle prospective tenants out of rent and deposit money. Cases of landlord impersonation have jumped throughout California in the past couple of years, according to sheriffs and legal aid clinics.

• "With a lot of foreclosures, the property sits empty for a long period of time," said Assemblywoman Fiona Ma, D-San Francisco. "What we're finding is that scam artists will come in, change the locks and advertise on Craigslist at a very enticing price. They tell people, if you want to get this deal you need to come back soon with cash for the deposit. People give them the money, sign a lease, get keys and a couple of days later the legitimate owner (an agent for the bank) comes and says, 'What are you doing here?' Then they're out whatever cash they've laid out."

• Ma is co-sponsoring a bill, AB1800, that would elevate the crime of landlord impersonation to felony grand theft, instead of its current classification as a misdemeanor.

For more, see More scam artists posing as landlords.

Ex-NFLer Swiped Former Teammate's Grandma's ID For Use In Mortgage Scam, Say Cops

In Miami, Florida, USA Today reports:

• Could a 6-6, 335-pound former NFL player get away with using the identity of a 74-year-old grandmother? That's a question to ask in the wake of Jamie Nails being charged with mortgage fraud. Miami police say the former Miami Dolphin and Buffalo Bill stole the identity of the grandmother of a former Bills teammate, Daryl Porter. Nails is accused of using the identity of Delores Porter to obtain a $510,000 mortgage for a condominium, according to the South Florida Sun-Sentinel. A warrant has been issued for the arrest of Nails, who played in the NFL from 1997-2002, making 51 starts.

Source: Ex-NFLer charged with stealing a granny's ID.

Queens Neighborhood Ranks #1 Nationally In Bogus Home Loan Concentration: Study

In Jamaica, Queens, the New York Daily News reports:

• Forget Las Vegas. Forget Miami. The No. 1 neighborhood in the U.S. for mortgage fraud is in the heart of Queens. A new study says a section of South Jamaica has the highest concentration of bogus loans in the nation, with zip code 11436 the absolute worst.

• First American CoreLogic, a mortgage and real estate data company, analyzed 80 million loans from Maine to Malibu from 2004 through last year. The firm says the fraudulent loan rate in the 9 square miles of blue-collar Jamaica is four times the national level and tops other hotbeds of lousy loans like Orlando, Atlanta and Detroit.

• The zip code the bank singled out includes the four-block area highlighted by the Daily News in 2008 as "Ground Zero" for foreclosures in New York. The fraud included lying about nonexistent income, inflating the value of homes by selling and reselling to co-conspirators, bribing appraisers and stealing deeds and identities. "In Jamaica, we didn't see [only] one type of fraud," said Tim Grace, First American's senior vice president. "It ran the gamut."

***

• The borough's elderly - many of whom have owned homes in Jamaica for years - are especially vulnerable, experts say. "They tend to be equity-rich and cash-poor, which is a prime target for any villain," said Assistant Queens District Attorney Greg Pavlides, whose office got 228 mortgage fraud complaints last year - twice the rate in 2005.

For more, see Jamaica, Queens leads the nation in fraudulent home loans.

Bullying Of Tenants In Foreclosure Evictions Continues As Owners, Lenders, Real Estate Agents Blatantly Disregard Federal Law

In Miami, Florida, The Miami Herald reports:

• All she had was 48 hours to clear out her belongings and vacate the house where she had lived for three years. One day last September, Gladys Flores received an unexpected visit from the owner of the property she rented in Little Havana. She had not seen him for months. Flores had religiously deposited the $600 monthly rent. The landlord came to inform her that the house had been repossessed by the bank.

• "He told us, `Either I call the police and you take everything out or I put a lock on the door so you cannot get in,' '' recalled Flores, a 53-year-old Peruvian immigrant who lives with her husband and makes a living as a housekeeper. The Flores had no money to rent a moving truck, so they took all their possessions -- in a shopping cart -- and left in fear, without filing a complaint with authorities.

• Since the onset of the foreclosure crisis, tens of thousands of renters in South Florida have suffered the fate of the Floreses. They have been tossed out by banks and landlords essentially overnight with no mercy, and without any protection from the state of Florida.

***

• Not surprisingly, Miami and other municipalities in South Florida are among the cities where the most violations of the Protecting Tenants at Foreclosure Act, signed into law by President Barack Obama last year, are happening. The provisions phase out at the end of 2012. "The law in general is being deliberately ignored,'' said Purvi Shah, a Florida Legal Services attorney who heads the Community Justice Project.(1) "The judicial sector must do its part to ensure compliance with these federal laws.''

• Under the act, tenants who have an oral or written lease arrangement are entitled to remain in the repossessed home until the end of their lease, unless the purchaser at foreclosure plans to make the property his or her primary residence. Even in this situation or if the tenants have no lease, the purchaser must deliver a 90-day notice to vacate.

• But the majority of banks, mortgage companies, real estate agents and foreclosure attorneys in South Florida continue to evict tenants within a matter of days, leaving them, literally, on the street, grass-roots organizations have told me. And the courts have done little to stop them.

• One of the main obstacles is that most of the tenants -- who in general are immigrants and low-income individuals -- are unaware of these new laws and believe they must leave the moment the landlord or a bank agent knocks on the door with news of the foreclosure. Many of these agents are adept at intimidating tenants. They manipulate them with offers of small amounts of cash for the keys, but later never refund the security deposit.

For the story, see Renters bullied by owners facing foreclosure.

(1) According to their website, Florida Legal Services is a nonprofit organization founded in 1973 provide civil legal assistance to indigent persons who would not otherwise have the means to obtain a lawyer.

Tenants Driven Out Of 112-Unit Complex Loaded With Code Violations; Foreclosing Lender Left Holding The Bag On Apartments Too Unsafe To Inhabit

In Beloit, Wisconsin, WISC-TV reports:

• A Beloit apartment complex is going into foreclosure just months after dozens of tenants were evicted due to building code violations. Countryside Village Apartments on Beloit's East Side is now mostly abandoned. The city said only about 10 of its 112 units are occupied. City officials said that with no communication from the property owner, there was no choice but for the bank to foreclose. "We've never had to deal with anything like this before," said Tom Clippert, Beloit's director of housing services.

***

• The majority of units at the apartment complex have been declared unsafe to inhabit. Residents were evicted due to unlivable conditions, including no heat, severe mold contamination and seepage problems, WISC-TV reported.

For the story, see Beloit Apartment Complex Going Into Foreclosure (Building Cited For Many Code Violations).

For a similar story in a 186-unit residential complex in foreclosure in Columbus, Ohio where, according to one resident, code enforcement officials received complaints about mold, exposed wiring, roaches and a lack of hot water, see The Columbus Dispatch: Renter has roaches aplenty, but no hot water (Living conditions deteriorate at complex after owner defaults).

Recession Leads Chicago-Area Legal Non-Profits, "Big Law" To Form Odd Couple In Utilizing Lawyer Oversupply

In Chicago, Illinois, the Chicago Tribune reports:

• Cabrini Green Legal Aid ended its 2009 fiscal year with a deficit for the first time in years. Even though it provided legal aid to more poor people than ever before — 5,348 — the not-for-profit could not afford to hire another full-time attorney on its $2 million shoestring budget.(1)

• Last year's recession also hit Chicago's big law firms that individually generate hundreds of millions of dollars in revenue from corporate clients. They were sitting with an oversupply of lawyers and were forced to lay off hundreds and postpone the starting dates of law school graduates they had hired to begin in the fall of 2009.

• The opposite ends of Chicago's legal profession found a way to come together out of economic necessity to partially consume the supply of highly educated young lawyers looking for work. Despite several challenges, the unusual experiment has paid dividends. It also has sparked discussions of whether a more permanent model of apprenticeships can be developed that would train law-school graduates at a lower cost and benefit public-interest legal organizations that are suffering from funding constraints while attending to a greater need because of the recession.

***

• About 60 first-year associates have gone to work for more than 20 public-interest and legal-aid organizations, estimates Kelly Tautges, director of pro bono services at the Chicago Bar Foundation, which has kept track of the placements.

For more, see With no space at the firm, rookie lawyers find a place in legal aid.

(1) According to their website, Cabrini Green Legal Aid provides free legal services to low-income Chicagoans in four areas of law: family, housing, criminal records, and criminal defense.

Florida Appeals Court Says Mortgage Lender Need Not Pay Condo Maintenance Fees While Dragging Its Feet In Proceeding To Foreclosure Sale

A Florida appellate court recently issued the following decision reversing a lower court ruling that forced a foot-dragging, foreclosing mortgage lender to either proceed with a foreclosure sale or begin paying the monthly maintenance fee on the condominium unit securing its loan. In ruling in favor of the lender, it agreed with a 2009 decision of a sister appellate court that reached the same conclusion in a another case with the same fact pattern:

• On May 12, 2008, Deutsche Bank National Trust Company filed a mortgage foreclosure complaint, naming the unit owner, Dario Luna, as well as the Coral Key Condominium Association (at Carolina), Inc., as defendants. After seven months of no record activity, the Association filed a motion to compel Deutsche to proceed with the foreclosure sale or pay monthly assessments due to the Association. The trial court granted the motion, explaining that it was fair and equitable for the mortgage holder to pay monthly assessments due to the Association if there is an extended period of delay in the foreclosure proceeding for no good reason. We reverse.

• After the trial court entered the order appealed, the Third District issued U.S. Bank National Ass'n v. Tadmore, 23 So. 3d 822 (Fla. 3d DCA 2009), which addressed this precise issue. In Tadmore, the court rejected the notion that equity and fairness support an order requiring a bank to pay condominium assessments while foreclosure proceedings are pending since section 718.116(1)(b), Florida Statutes (2009), makes it clear that the first mortgagee is required to pay assessments only after acquiring title, and equity follows the law. Id. at 823-24. We agree with Tadmore and reverse.

For the ruling, see Deutsche Bank National Trust Company as Trustee v. Coral Key Condominium Association (at Carolina), Inc., 4D09-3392 (Fla. 4th DCA April 14, 2010).

C. Florida Judge Reverses Earlier Grant Of Summary Judgment In Favor Of Foreclosing Lender; Questions Veracity Of Court Filings By Foreclosure Mills

In St. Petersburg, Florida, foreclosure defense attorney Matthew Weidner writes:

• Search this blog and you will see that for months now I’ve been arguing that the “evidence” submitted by Plaintiffs in foreclosure cases does not even come close to meeting the legal and evidentiary requirements for courts to grant summary judgment.

• After performing extensive legal research to confirm this hunch, I have drafted and filed detailed memoranda, supported by all available case law, that stands for the proposition that the practices used by virtually every foreclosure mill in the state do not provide the evidentiary basis for a court to grant summary judgment.

• So why are courts across this state continuing to grant summary judgment? There really is NO LEGAL BASIS TO SUPPORT THE GRANTING OF SUMMARY JUDGMENT IN THE VAST MAJORITY OF FORECLOSURE CASES CURRENTLY FILED IN COURTS ACROSS THIS STATE.

• I attach here the most fantastic transcript of a hearing I’ve heard in a long time.(1) This transcript shows a couple things:
  
  First, the judges in the Sixth Circuit of Florida really, really get it.
  
  Second, this particular judge goes far and above to do his job and deliver real, hard, honest legal work.
  
  Third, as I mentioned above…the current processes and procedures used by the foreclosure mills do not provide courts the evidentiary or legal basis required to grant summary judgment.

• But now the big question that comes to mind….now that this judge gets it…and now that my memos and others like my friend and fellow Foreclosure Fighter Mike Wasylik are starting to leak out there… What happens to all the hundreds of thousands of homes that have been foreclose on by improper evidence?

Source: CASE LAW UPDATE - Judges Should Never Grant Summary Judgment in Florida.

(1) The matter involved a rehearing of a previously granted summary judgment in favor of a foreclosing lender. On rehearing, the judge reconsidered his earlier ruling, and after rexamining some of the documents in the case that caused him to question the veracity of the documents being filed in foreclosure cases, generally, reversed his earlier ruling. Representing the foreclosing lender in this case was the Law Offices of David J. Stern, P.A., a notorious assembly line, foreclosure mill law firm operating out of Broward County, Florida.

South Florida Lawyer Masquerading As Foreclosure Defense Attorney While Associated With Notorious Assembly Line Foreclosure Mill Law Firm?

In Palm Beach County, Florida, 4closureFraud.org reports on a foreclosure action in which a homeowner facing foreclosure was allegedly duped into paying a $1,000 legal fee for the services of an attorney who claimed to be in private practice but, in actuality, is listed as being "Of Counsel" on the letterhead of a notorious South Florida assembly line foreclosure mill.

For the post, see Foreclosure Mill Attorney for Marshall Watson or Foreclosure Defense Attorney for Homeowners?

For the court filing on which the above is based, see Motion For Disqualification Of Counsel And For Disgorgement Of Attorney's Fees (filed by the law firm Ice Legal, P.A., West Palm Beach, Florida on behalf of the screwed over homeowner).

LPS Shuts Down Alleged Bogus Foreclosure Document "Manufacturing" Racket; Pumped Out Over A Million Mortgage Assignments In Last 2 Years

Fraud Digest reports:

• On April 12, 2010, Lender Processing Services closed the offices of its subsidiary, Docx, LLC, in Alpharetta, Georgia. That office was responsible for pumping out over a million mortgage assignments in the last two years so that banks could foreclose on residential real estate. The law firms handling the foreclosures were retained and largely controlled by Lender Processing Services, according to a Sanctions Order entered by U.S. Bankruptcy Judge Diane Weiss Sigmund (In re Niles C. Taylor, EDPA, Case 07-15385-sr, Doc. 193).

***

• Although the Alpharetta office has been closed, Lender Processing Services continues to mass produce "replacement" assignments from its Jacksonville, Florida, and Dakota County, Minnesota offices. Law firms retained by Lender Processing Services also often use their own employees, posing as officer of Mortgage Electronic Registration Systems, to produce the needed Assignments.

• Since the vast majority of homeowners do not retain counsel in foreclosure proceedings, this flawed system has worked very effectively for the last few years, with courts all over the country rarely questioning why so many mortgage companies had officers in Alpharetta, Georgia, or why Trusts that closed in 2005 and 2006 were just obtaining Mortgage Assignments in 2009 and 2010. Most courts never even questioned why companies long-dissolved, such as Option One, could still be executing documents years after the dissolution.

• While the closing of the Alpharetta office may be a sign that these fraudulent activities will finally be exposed and addressed, for the time being, it is just a matter of an unsatisfactory end of one small facet of an enormous and far-reaching problem.

Source: Fraud Digest - April 13, 2010 news item.

Thanks to "Deontos .is" for the heads-up on this story.