Wednesday, September 15, 2010

Glendale Cops Begin Dipping Into $150K Grant Money As Battle Escalates Against Foreclosure Scams, Other Real Estate Rackets

In Glendale, California, the Glendale News Press reports:
  • Glendale police detectives have begun using a $150,000 grant to investigate real estate fraud as more scam artists take advantage of homeowners looking to refinance their mortgages, officials said. The funding has been used to look into tips that may result in lengthy real estate fraud investigations, Lt. Susan Hayn said. Details about the cases were not disclosed because they are under investigation.

***

  • Investigating real estate fraud can be time consuming.(1) Detectives must often work long hours to track suspects and information, Hayn said. The unit's large caseload was one critical component for the large grant amount, said county Deputy Dist. Atty. Dan Baker of the Real Estate Fraud Section. So far this year, Baker said his section is working on 50 cases with about seven prosecutors. The cases logged 134 defendants, which he said is common for real estate fraud.

  • Because real estate fraud cases are complicated, he said prosecutors rely heavily on a police department's investigative skills and ability to organize evidence clearly. The number of real estate fraud cases throughout the county is overwhelming, Baker said.

For more, see Police fight real estate fraud (Grant money is helping to pay for hours of overtime investigating mortgage, foreclosure scams).

(1) Reportedly, one particular real estate fraud case was investigated for three years where a Glendale homeowner contacted police after his home was sold by scam artists without his knowledge. But an investigation into the home sale began to unravel a more complicated scheme. Detectives discovered that a pair of scam artists had represented themselves as real estate facilitators and recruited fraudulent mortgage brokers and notaries to submit fake loan applications and appraisals to lenders for six properties, police said. The pair was eventually convicted of the scheme and sentenced to more than 25 years in prison, the story states.

California Regulator To Step Up Education, Enforcement Efforts In Response To Alarming Escalation Of Short Sale Fraud

The Bakersfield Californian reports:
  • The California Department of Real Estate says it has noticed an alarming escalation of short sale fraud and will step up education and enforcement efforts to combat it.

***

  • "It's just starting to take shape," said Department of Real Estate spokesman Tom Pool. "I kind of equate it with the loan modification fraud, where we started out with just a few complaints and saw a swelling of it over time. "The fraud has shifted over to the short sales."

***

  • A variety of deals have come up since then that cross legal or ethical lines, Pool said. That's why this week, California Real Estate Commissioner Jeff Davi sent letters to lenders warning them to be on guard.

  • For one thing, a growing number of short sale negotiators are demanding upfront payments to work out an agreement with a lender on a borrower's behalf, then failing to do anything in return for that fee. Upfront payments are illegal without prior approval from the state, which mandates that money is held in escrow until after services are rendered and there's a full accounting of how the money was spent. Some short sale negotiators also are compelling buyers to pay their fee and failing to disclose that payment to lenders.

  • A more costly form of fraud is short sale flipping. That's when a lender is told of a short sale purchase offer that is described as reflective of a property's fair market value, when in fact the offer is much too low. The lender accepts the offer, believing it's the most it can get, and after the deal closes the house is immediately resold for its true, higher value. The perpetrators of the fraud, who could be agents, brokers, appraisers or straw buyers, then pocket the difference between the two sale prices.

***

  • The California Mortgage Bankers Association says it has definitely seen an increase in short sale fraud, and appreciates Davi's effort to call attention to the problem. "It affects everyone," said spokesman Dustin Hobbs. "It disrupts the market and takes business away from honest brokers and agents, because the majority of the perpetrators in these cases are unlicensed people who really shouldn't be operating in the first place."

For more, see Real Estate Department warns of rise in short sale fraud.

California Appeals Court Allows Homeowner's Class Action Suit Alleging Loan Modification Misconduct Against Attorney To Continue

In Southern California, Metropolitan News Enterprise reports:
  • The Fourth District Court of Appeal has ruled that a former client can proceed with a suit alleging that Irvine attorney Sean Rutledge, who resigned from the State Bar in November amid accusations of loan modification misconduct, engaged in capping and charged illegal fees.

  • Reasoning that Cu Phan established a probability of prevailing on his claims, Div. Three on Friday in an unpublished opinion affirmed an order denying Rutledge’s motion to strike Phan’s complaint as a strategic lawsuit against public participation.

  • Phan filed a class action in September 2009 claiming that Rutledge and his firm, United Law Group Inc., violated state law by using telemarketers to make cold calls to individuals who were in default or faced foreclosure on home loans. Under state law, Phan contended, such conduct constitutescapping,” a practice sometimes referred to in other contexts as “ambulance chasing.”

  • He also alleged that Rutledge and the firm required clients to pay purportedly “non-refundable” advance fees. Rutledge, who was admitted to the State Bar in 2008, tendered his resignation with disciplinary charges pending,(1) and his firm filed for bankruptcy protection following Phan’s suit. He was ordered enrolled as an inactive member earlier that month under Business and Professions Code Sec. 6007 for an alleged pattern of client neglect involving failing to perform, failing to communicate, and/or failing to refund unearned fees in 14 matters.
For more, see C.A.: Suit Accusing Attorney of Capping Can Proceed.

For the court's ruling, see Phan v. Rutledge, No. G042983 (Cal. App. 4th District, Div. 3, September 10, 2010).

(1) Reportedly, State Bar Court Judge Richard Honn wrote that Rutledge “promised to help troubled homeowners—many of whom were in arrears or on the brink of foreclosure—modify their home loans and maintain financial stability,” but instead “took their money and time and offered little or nothing in return,” leaving them in a worse position than when they sought his help.

Tuesday, September 14, 2010

Loan Modification Scammer Wastes No Time With Guilty Plea As Indictment Remains Pending Against Two Others

From the Office of the Nevada Attorney General:
  • Doninador Palalay a.k.a. Dominador Palalay has pled guilty to Theft-Obtaining Money in Excess of $2500 by Material Misrepresentation, a category B felony, for his role in operating a foreclosure rescue scam in Las Vegas during 2008 and 2009 under the business name of PDM Financial Group, Inc.

***

  • On August 30, 2010, Palalay, along with co-defendants Marie Tejada Medina and Benjamin Aquino Moraleda III, were indicted by a Grand Jury for their roles in operating a foreclosure rescue scheme.(1) The Indictment alleges that Palalay and his co-defendants operated a document preparation and loan modification business that charged one percent of the victims’ loan balance(s), or between $2,600.00 to $3,700.00, for loan modification and document preparation services. They also misled customers by falsely claiming their services would prevent foreclosures on their homes and/or they would obtain loan modifications. The State alleges that the services were not performed.

  • The Indictment further alleges that Palalay, Medina and Moraleda defrauded consumers by having them sign false Deeds of Trust that gave the Defendants liens on the victims’ homes based on false promissory notes that deceptively claimed loans had been made on the properties. In fact, the loans had not been made. The Indictment alleges this was done to cloud the title to the home and prevent the legitimate lenders from foreclosing on the victims’ properties.

For the Nevada AG press release, see Guilty Plea Announced In Foreclosure Rescue Scam.

(1) Reportedly, the Indictment remains pending against Medina and Moraleda for their alleged roles in the foreclosure rescue scheme; Moraleda is currently a fugitive from justice. Inasmuch as it took Palalay less than two weeks from the time of his arrest to plea guilty, one can safely proclaim him the clear winner of the "race to the prosecutor's office." Expect that he will now “belly up” and tell what he knows about his "ex-colleagues" in order to snag the best deal when sentenced. See United States v. Moody, 206 F.3d 609, 617 (6th Cir. 2000) (Wiseman, J., concurring) for one Federal judge's observation, made in the context of drug conspiracy cases, involving the so-called "race to the courthouse/prosecutor's office" but, in my view, is equally suited to other types of major, multi-defendant felony cases:

  • In practical terms, drug conspiracy cases have become a race to the courthouse. When a conspiracy is exposed by an arrest or execution of search warrants, soon-to-be defendants know that the first one to "belly up" and tell what he knows receives the best deal. The pressure is to bargain and bargain early, even if an indictment has not been filed.

(A similar approach may be worth some consideration in going after and bringing down the "phony-document-manufacturing" foreclosure mills.)

Couple Dodges The Boot After Buying Home On A Land Contract, Then Discovering Undisclosed Title Flaw After Making Significant Property Improvements

In Racine, Wisconsin, The Journal Times reports:
  • A family that was threatened with eviction after investing thousands to improve a home will apparently be allowed to stay. Racine County Sheriff Robert Carlson said there are no plans to evict Noelia and Joaquin Raygoza from the home at 1404 Buchanan St. The eviction had been scheduled for Thursday.

***

  • As reported in The Journal Times, the Raygozas signed papers in January to buy the house on a land contract and spent thousands to renovate a building that neighbors had watched deteriorate over the years. Although everyone agreed the family had fulfilled all of its obligations, a mix-up in a previous foreclosure threatened to void their ownership and force the Sheriff's Department to evict them.

  • Last month Carlson postponed the eviction proceedings to allow the Raygozas, the various financial institutions and the sellers to work out another solution.

Source: Threat of eviction lifted after mix-up.

For earlier post on this story, see Another Novice Homebuyer Gets Screwed Over In Land Contract Deal; Sinks $15K Into Property Rehab, Now Faces The Boot Over Undisclosed Title Claim.

Lender's Improper Calculation Of Interest Sinks Foreclosure Action, Leaves It Holding A Criminally Usurious Mortgage Loan Subject To Cancellation

A recent court ruling by a Florida appeals court shows how a private mortgage lender, by engaging in certain practices, can find itself unwittingly holding the bag on what a court finds to be a criminally usurious loan that is unenforceable and subject to cancellation. A summary of the facts, adapted from the court's opinion, follow:
  • One, Velletri, obtained a loan with a face amount of $250,000 from Providence Mortgage Corporation, which was a mortgage servicing company acting on behalf of Dixon, a private lender. The loan proceeds were to be used to purchase and renovate a commercial property in St. Petersburg.

  • The loan was an "interest only" loan, and the loan documents indicated that Velletri would make twenty-three "interest only" payments of $3150 followed by a final balloon payment of $253,150. The stated interest rate of the loan was 15 percent.

  • According to the closing documents, Providence withheld $12,500 from the loan proceeds as an "origination fee." It also withheld $513.70 as "interest."

  • Further, to ensure that the proposed renovations were actually performed, Providence also withheld an additional $65,000 at closing as "construction loan funds," and it placed those funds into an escrow account from which Velletri could apply for reimbursement as the renovations progressed.

  • However, despite the withholding of sums totaling $78,013.70 from the loan proceeds at closing, the $3150 "interest only" payment was calculated based on a 15 percent interest rate on the full $250,000 face amount of the loan.

  • Providence assigned the note and mortgage to Dixon at closing.

  • Ultimately, Velletri defaulted on the loan and Dixon filed his foreclosure action against the property.

  • Velletri defended against the foreclosure action by raising the defense of usury. Velletri contended that the loan was criminally usurious from its inception and that therefore the note and mortgage were unenforceable.

  • Dixon argued that the loan was not usurious because he had not received the funds withheld at closing and because he had no usurious intent.

  • The Florida appeals court ultimately determined that, as a result of the lender charging interest on the entire face amount of the loan, without any abatement to reflect the withheld loan proceeds, the recalculated interest pushed the actual rate charged to over 25%, which under Florida law, constitutes criminally usurious interest, the remedy for which is cancellation of the debt itself and a return of any loan repayments made by the borrower.(1)

Grissim H. Walker, Jr., of Consumer Law Center, P.A., Bradenton, represented the borrower.

See Velletri v. Dixon, Case No. 2D08-6251 (Fla. App. 2nd Dist. September 10, 2010) for the ruling, along with the actual number-crunching involved in the determination that the interest charged on this loan exceeded the maximum amount (25%) allowed on this type of loan under Florida law.(2)

(1) The court's identification of the applicable Florida law in this case follow (bold text is my emphasis, not in the original text; my [alteration] added; cited statutes are found in Chapter 687, Florida Statutes:

  • Sections 687.03, 687.04, and 687.071 provide statutory causes of action which allow a borrower to seek affirmative relief against a lender who has made a usurious loan.

  • Civil usury involves loans of $500,000 or less with an interest rate greater than 18 percent and less than 25 percent. See § 687.03(1).

  • Criminal usury involves any loan amount with an interest rate greater than 25 percent. See § 687.071(2).

  • The penalties for civil usury include forfeiture of double the interest actually charged and collected. See § 687.04. The civil penalty for criminal usury is significantly greater: forfeiture of the right to collect the debt at all. See § 687.071(7).

  • Whether a transaction is either civilly or criminally usurious is determined at the inception of the loan. See Home Credit Co. v. Brown, 148 So. 2d 257, 259 (Fla. 1962); Oregrund Ltd. P'ship v. Sheive, 873 So. 2d 451, 458-59 (Fla. 5th DCA 2004).

  • If a borrower is required to pay a bonus or other consideration at the inception of the loan as an inducement to the lender to make the loan, such an inducement may be considered interest and can render an otherwise proper loan usurious. See Cooper v. Rothman, 57 So. 985, 988 (Fla. 1912); Jersey Palm-Gross, Inc. v. Paper, 639 So. 2d 664, 667 (Fla. 4th DCA 1994), aff'd, 658 So. 2d 531 (Fla. 1995).

  • Similarly, if a lender retains a substantial portion of the loan proceeds without allowing a corresponding abatement of interest on the amount retained, that retention effectively increases the interest charged on the amounts actually advanced to the borrower, which can render an otherwise proper loan usurious. See Mindlin v. Davis, 74 So. 2d 789, 793 (Fla. 1954).

  • Section 687.03(3) sets forth the methodology to be used to determine whether a loan is usurious when some of the loan proceeds have been retained by the lender at closing. The Florida Supreme Court applied this statutory methodology in St. Petersburg Bank & Trust Co. v. Hamm, 414 So. 2d 1071 (Fla. 1982), and specifically rejected any alternative means of calculating the effective interest rate of a loan.

***

  • [L]oan proceeds retained by the lender are considered additional interest, see Brown v. Home Credit Co., 137 So. 2d 887, 892 (Fla. 2d DCA 1962), and do not reduce the "stated amount of the loan" identified in section 687.03(3), see Hamm, 414 So. 2d at 1073.

***

  • Having determined that the note was criminally usurious at its inception, we must next consider what remedy is proper. Generally, a debt that is criminally usurious at its inception is not enforceable. See § 687.071(7) ("No extension of credit made in violation of any of the provisions of this section shall be an enforceable debt in the courts of this state."); Brown, 137 So. 2d at 892 ("[I]f the interest charged exceeds twenty-five percent per annum the lender shall forfeit the entire indebtedness, both principal and interest.").

  • However, Velletri claims she is entitled to more than that. She contends that she should be entitled to both cancellation of the note under section 687.071(7) and an award of double the interest paid under section 687.04—essentially a combination of the remedies for both civil and criminal usury. But such a remedy would be improper.

  • When a debt is criminally usurious, the remedy is cancellation of the debt itself and a return of any amounts paid. There is no authority for cumulating the penalties for both civil and criminal usury, and, in fact, the authority is to the contrary. See Rosenbloom v. Hart, 95 So. 2d 18, 19-20 (Fla. 1957) (noting that sections 687.04 and 687.071 recognize and define different degrees of usury and provide distinct and separate penalties which are not cumulative); Brown, 137 So. 2d at 893 (same); Gordon v. W. Fla. Enters. of Pensacola, Inc., 177 So. 2d 859, 862 (Fla. 1st DCA 1965) (same); Coral Gables First Nat'l Bank v. Constructors of Fla., Inc., 119 So. 2d 741, 748-49 (Fla. 3d DCA 1960) (same).

  • Contrary to Velletri's assertions, no court has held that the remedies provided in sections 687.04 and 687.071(7) are cumulative of each other. Therefore, we reject Velletri's suggestion that she is entitled to both cancellation of the debt and payment of double the interest she paid. Instead, on remand, the trial court should enter a judgment in favor of Velletri on the foreclosure action and award her a judgment in the amount the evidence establishes that she actually paid Dixon.

(2) The private lender in this case found itself holding an uncollectible, unenforceable loan, despite the fact that the stated rate of interest on the promissory note itself was otherwise within the maximun limits, as a result of a judicial recharacterization of the withheld loan proceeds as additional interest. Similarly, a foreclosure rescue operator (or anyone else, for that matter) can find itself in violation of the Florida usury statute as a result of a judicial recharacterization when peddling a sale leaseback arrangement that is combined with a repurchase right/option if such a transaction is ultimately recharacterized by a court as a secured loan/equitable mortgage, and where the "profit' on the deal (which would be recharacterized as "interest") violates the above-referenced Florida law. See, for example, Oregrund Ltd. P'ship v. Sheive, 873 So. 2d 451, 458-59 (Fla. 5th DCA 2004), which involved a usury claim in the context of a sale-buyback deal in a civil case. See also Equitable Mortgage & Usury In Sale Buyback Deals In Florida. (Note that, to the extent the sale leaseback transaction falls within the purview of Florida’s Foreclosure Rescue Fraud Prevention Act, F.S. 501.1377(6) thereof creates a rebuttable presumption that the deal is a loan transaction and the deed conveyance from the homeowner to the purchaser (ie. the foreclosure rescue operator, straw buyer, etc.) is an equitable mortgage under F.S. 697.01.)

Monday, September 13, 2010

Federal Court To Consider Consolidation Of Homeowner HAMP Suits Against BofA Alleging Illegal Jerk-Arounds As Similar Claims Continue To Proliferate

USA Today recently ran a story on the proliferation of lawsuits being brought by financially-strapped homeowners against loan servicers for jerking them around when seeking affordable modifications of their house payments, and points to a recent class action suit brought by Lake Stevens, Washington couple Anthony and April Soper, among others, as an example of these types of suits.
  • Whether the Lake Stevens, Wash., couple keep their home may hinge on the outcome of a legal strategy that aims to join struggling homeowners with similar experiences in the HAMP program in a class-action lawsuit against the nation's largest bank. On Sept. 30 in Nashville, a federal court hearing is scheduled to consider consolidating the Sopers' case with more than a dozen others against Bank of America.

  • Similar lawsuits, also seeking class-action status, are pending against other major servicers such as JPMorgan Chase and Wells Fargo. Taken together, the cases threaten to amplify a growing public frustration with mortgage servicers' treatment of HAMP borrowers and HAMP's modest results.

***

  • Most of the lawsuits allege that the three- or four-month trial payment plans are contracts, and that Bank of America and other servicers broke them by not giving permanent modifications to homeowners who made their trial payments on time and provided the necessary documentation.

  • Servicers have asked courts to dismiss some of the cases, saying the trial plans are not contracts. Bank of America, which says it plans to seek dismissal of the Soper case, argues in a court filing in a similar case that it must consider borrowers for a HAMP modification, but that it has discretion in granting permanent modifications.

***

  • "Borrowers have said we should be able to enforce the contract between Treasury and mortgage servicers, and many courts have rejected that. Our cases are the first filed that touch on a contract between servicers and borrowers," says Kevin Costello, a lawyer with Roddy Klein & Ryan in Boston, which represents homeowners in cases against Bank of America, JPMorgan Chase and Wells Fargo.

  • "This litigation is spreading all across the country. People have been relying on a promise all along, and then they get a denial. Then they find themselves in that much worse of a hole," he says.

***

  • Meanwhile, the number of homeowners claiming improper denials of HAMP modifications is climbing. One is Peter Salinas, 52, who struggled to pay his mortgage after the economy collapsed and his wife developed cancer. He appealed to his lender for help.

  • Salinas says he felt elated last year when he received a HAMP trial modification slashing $500 off his monthly payments. But later, he was told he made too much money to qualify for permanently reduced payments, he says. Wells Fargo threatened foreclosure if he didn't pay $9,000, the difference between his original mortgage and what he paid during the trial.

  • His servicer, Wells Fargo, declined to comment on his situation. Salinas is working with Gulfcoast Legal Services, a not-for-profit [Central Florida] civil legal aid office, that says it is preparing a lawsuit against the lender. "I was convinced I was doing everything right," says Salinas, a reporter for an automotive trade publication who lives near Bradenton, Fla. "I wasn't trying to walk away from this mortgage. It's just infuriating."

For the story, see Home mortgage modification snags spark lawsuits.

Suspicious Shorts Sales Continue To Attract Spotlight

The New York Times reports:
  • STRUGGLING homeowners have found some refuge in short sales, in which lenders allow borrowers to escape foreclosure by selling a home for less than what is owed on the mortgage. Government programs offering incentives to both parties will push the number of short sales to 400,000 this year from 100,000 in 2008, according to CoreLogic, a financial consulting firm.

  • But the jump in short sales has also given rise to a new form of fraud — which, as a recent study by CoreLogic suggests, could undermine the burgeoning practice.(1)

For more, see A Downside of Short Sales.

(1) The study can be downloaded by visiting www.corelogic.com/shortsalestudy.

NC Real Estate Operator Cops Guilty Plea To Foreclosure Bid Rigging Claims; Conduct Suppressed Sale Prices, Screwing Lienholders, Homeowners: Feds

From the U.S. Department of Justice:
  • A Raleigh, N.C., real estate speculator pleaded guilty to conspiring to rig bids for public real estate foreclosure auctions held in multiple counties in eastern North Carolina, the Department of Justice announced [].

  • Christopher J. Deans pleaded guilty [] in U.S. District Court in Greenville, N.C., for participating in a conspiracy to rig bids during the real estate foreclosure auction process in eastern North Carolina from at least as early as April 2003 until at least April 2005.

***

  • According to the charge, which was filed on July 29, 2010, Deans, an owner of Raleigh-based real estate investment companies, and co-conspirators agreed not to bid against each other during public real estate foreclosure auctions in eastern North Carolina. As part of the conspiracy, Deans and co-conspirators paid one another not to bid on foreclosed properties and received economic benefits from the rental and sale of real estate purchased through the rigged foreclosure auction process.

  • The conspiracy resulted in the suppression of competitive bidding on foreclosed properties which caused foreclosing lienholders and certain homeowners to receive a lower price for properties sold through foreclosure actions, the department said.

For the DOJ press release, see North Carolina Real Estate Speculator Pleads Guilty to Bid Rigging in Real Estate Foreclosure Auctions.

Go here for other posts & links on bid rigging at foreclosure and tax sale auctions.

(1) According to DOJ, the charge against Deans is the first to arise in an ongoing federal antitrust investigation of fraud and bidding irregularities in certain real estate auctions in the Eastern District of North Carolina. DOJ states that the investigation is being conducted by the Antitrust Division’s Atlanta Field Office and the FBI, and urges anyone with information concerning bid rigging or fraud related to real estate foreclosure auctions should contact the Antitrust Division’s Atlanta Field Office at 404-331-7100 or visit www.justice.gov/atr/contact/newcase.htm.

Sunday, September 12, 2010

Montana Man Gets 10 Years For Attempted Vacant Home Hijacking; R/E Agent Blows Whistle After Noticing Missing "For Sale" Sign From One Of His Listings

In Polson, Montana, the Great Falls Tribune reports:

  • A drifter convicted of trying to assume ownership of a Polson-area house in foreclosure has been sentenced to 10 years in prison. KERR-AM reports that District Judge Kim Christopher sentenced 53-year-old Brent Arthur Wilson to 20 years in prison with 10 suspended on Thursday.

  • Wilson was convicted of theft, deceptive practices, tampering with public records and a misdemeanor count of criminal mischief. The investigation into Wilson began when a real estate agent noticed “for sale” signs had been removed from a $380,000 house he was selling on behalf of a lender in August 2009. The locks had also been changed.

  • Wilson also filed strange paperwork with the Lake County clerk and recorder’s office claiming he had purchased the house from Yahweh.(1)

Source: Drifter gets 10 years for trying to steal houses.

(1) For earlier stories on Wilson, see:

WPB Man Convicted In Earlier Home Hijacking Incident Bagged Again; Accused Of Filing Four Adverse Possession Claims On Homes Soon After Jail Release

In West Palm Beach, Florida, The Palm Beach Post reports:
  • A year in jail wasn't enough to deter a 52-year-old West Palm Beach man bent on renting out homes he doesn't own. Claiming he is backed by an obscure Florida law pertaining to abandoned and vacant property, Carl Heflin again has attempted to take homes via adverse possession and rent them to unwitting tenants, according to Palm Beach County sheriff's investigators.

  • He was arrested the first time in relation to the practice in 2009. Following a July release from the Palm Beach County Jail,(1) Heflin filed adverse possession papers on four homes, renting one on Tallahassee Drive and accepting $2,500 from a tenant to begin a three-year lease.

  • Heflin was arrested again Tuesday afternoon on multiple charges of, among other things, burglary, organized scheme to defraud and contributing to the delinquency of a minor. On Wednesday, Palm Beach County Circuit Judge Krista Marx ordered Heflin held in lieu of $100,000 bail.

  • Heflin's 17-year-old daughter, Carli, also was charged with burglary because she allegedly broke windows to get into empty homes so her father could change the locks, the sheriff's report says.

For more, see West Palm Beach man arrested again for allegedly trying to rent out homes he doesn't own.

(1) Reportedly, Heflin's original charges related to adverse possession were pleaded down to misdemeanor trespassing because prosecutors said he had already spent 13 months in jail awaiting trial and the victims or owners of the properties were either unavailable or unwilling to appear for trial.

CT Probate Judge With Dubious History Faces Judicial Misconduct Charges In Suspected Land Grab Involving Now-Deceased 92 Year-Old's $1.5M+ Farm

In Southington, Connecticut, the Hartford Courant reports:
  • Rare is the chutzpa so shamefully displayed by Southington Probate Court Judge Bryan F. Meccariello. The judge who presided over a court process that expunged Sam Manzo, a humble farmhand, from Josephine Smoron's will, now wants to be the hero.(1)
  • Meccariello told the Council on Probate Judicial Conduct this week that it was but a small mistake that he ignored Smoron's will in May 2009 when he gave the OK to the creation of two trusts that allowed the Smoron Farm to be acquired by a local developer.
  • The judge said he was merely trying to bring Smoron home before she died in June 2009 at age 92. At the time, Smoron lay dying in a nursing home. Her wish was to give the family farm, worth at least $1.5 million, to Manzo, her long-time caretaker. Meccariello hadn't seen her in more than a year. The man he appointed as her conservator — local lawyer John Nugent — never bothered to meet her. ("I don't speak dementia,'' Nugent artfully explained to the council this week.)
***
  • Manzo, who mortgaged (and lost to foreclosure) his home to help pay for some of Josephine Smoron's bills and who was removed by Meccariello as her conservator in 2008, could only shake his head.
***
  • Meccariello is the man who allowed the entire mess to unfold, who never would have been caught were it not for Manzo's complaint about a railroad job unfolding in the Southington Probate Court. This is the judge who, as Smoron's sad fate unfolded before his court over her last year, never bothered to find out how she was doing in the hospital or nursing home.(2)
For more, see Southington Probate Court Judge Bryan Meccariello Faces Judicial Misconduct Charges (if link expires, TRY HERE).
See also:
(1) Stated another way, it sounds like Judge Meccariello may have effectively single-handedly disinheritred Mr. Manzo from Josephine Smoron's will.
(2) Reportedly, the same probate council admonished Meccariello in 2007 for a habit of mixing his roles as judge, land investor and lawyer for local developers because it had an appearance of impropriety. This time, Meccariello promised the council that there was no "conspiracy to divert or funnel land to a local developer," the story states. He reportedly said: "There is nothing sinister. There is nothing underhanded that went on. This was a mistake. It is being corrected."

Saturday, September 11, 2010

Allegedly "Fixing" F'closure Case Among Activities Set Forth In Charges Filed Against Cuyahoga County Auditor Suggesting Possible Judicial Corruption

In Cleveland, Ohio, The Plain Dealer reports:
  • The charges filed Thursday against Cuyahoga County Auditor Frank Russo offer the most detailed description yet of the suspected corrupt activities of two Common Pleas Judges -- one of whom is seeking re-election.

  • Excerpts of conversations between Russo and Judges Bridget McCafferty and Steven Terry suggest that the judges accepted political support and financial assistance on their campaigns in exchange for allowing Russo to call the shots on cases in which he or his associates had a stake.

***

  • In exchange for his help, Russo wanted control over the outcome of certain [of Terry's ] civil cases, according to the charges. The docket Terry inherited included numerous civil foreclosure cases involving Russo's close friend O'Malley, who was representing one of the litigants. American Home Bank was seeking $190,000 in damages from O'Malley's client.

  • O'Malley called upon Russo to wield his influence over Terry and convince the judge to deny motions for summary judgment in the case to force it to a settlement. According to the charges, Russo called Terry in July 2008 and asked, "Did (a county employee) give you the case numbers? ... I talked to you about this once before ... it's about denying the motions for summary judgment."

  • "Yep, I still have the note you gave me," Terry replied. "Okay, good, so deny the motions for summary judgment, okay, good. ... I just wanted to touch base with you on that," Russo said. The following day, Terry reported to Russo that he had followed through on his promise. "I called just to tell you that I took care of those two issues with those two cases that we talked about. ... Denied everything."

For the story, see Frank Russo charges suggest he corrupted county judges.

Publicly-Traded S. Florida Foreclosure Mill's Reported Profits, Revenues Take Dip; Stock Sells At 25% Of April 26 Value

In Plantation, Florida, the South Florida Business Journal reports:
  • As an investigation by the Florida Attorney General’s Office looms over its chairman and CEO, Plantation-based DJSP Enterprises reported a decline in both profits and income during the second quarter. The foreclosure and title processing company (NASDAQ: DJSP) reported net income of $3.8 million, or 32 cents a share, on revenue of $56.1 million. That’s down from net income of $14.1 million, or 73 cents a share, on revenue of $61.7 million in the second quarter of 2009.

  • DJSP handles foreclosure legal work for major lenders, and its largest client is the Law Offices of David J. Stern, P.A. The lawyer is chairman and CEO of DJSP. [...] DJSP shares closed up 11 cents to $3.32 [as of Sept. 7]. The 52-week high was $13.65 on April 26. The 52-week low was $3 on Aug. 31.

For more, see DJSP reports smaller profit as AG probe looms.

Desperate Dogs Left Trapped In Garage Of Abandoned Home In Foreclosure; County Animal Control Officials Show Little Interest, Says Neighbor

In Anne Arundel County, Maryland, Investigative Voice reports:
  • The driveway is littered with an empty cigarette pack and toys. A garden hose sits at the ready, tools nearby. For all intents and purposes, the home on Oakwood Drive in Anne Arundel County looks occupied.

  • But from a garage with boarded-over windows, the sound of howling dogs fills the air. Trapped animals left behind. Neighbors say three dogs have been locked inside the dilapidated garage for at least a week and a half without food or water after the occupants of the home left, the result of a foreclosure. Through a cracked window the dogs bark, and growl, desperate it seems, to be released.

***

  • What’s really distressing is how the people who should take the most interest in this have responded,” said Jenn Rosowski, another nearby resident who fosters stray animals and has been coordinating efforts to free the dogs. Her efforts to get county officials to intervene again have been rebuffed. “She was actually really rude,” Rosowski said of the Animal Control agent who discussed the case with her. “These are innocent animals, they need help.”

For more, see Cruel Intentions — Anne Arundel residents want to free dogs left behind, trapped in garage (Animal Control Office Shows Little Interest).

In a follow-up story, see Maryland Gazette: No charges to be filed in 'abandoned' dog case (Police, animal lovers disagree on what constitutes proper care):

  • [W]hile the animals were heavily infested with fleas and living amid large piles of excrement, the head of the county's Animal Control unit noted that the property's absentee owners had laid out food and water for the dogs.

***

  • Animal lovers - some of whom broke into the garage yesterday and freed the dogs after reading about their plight on several online message boards and blogs - blasted the county's decision not to file charges against Patricia Strickland or even seize the animals. They argued the conditions inside the garage were deplorable. [... N]eighbors registered anonymous complaints with Animal Control. Then the story hit the Internet, and it all "mushroomed into hysteria," [Lt. Glenn] Shanahan said.

Ex-Project Mgr.: Condo Conversion Amounted To "Putting Lipstick On An Elephant" As Developer Allegedly Unloaded Shoddy Units On Unwitting Homebuyers

In Redmond, Washington, The Seattle Times reports:
  • Vijay Dusi is paying $2,450 a month to live in a condominium so riddled with toxic mold that his family has shuffled from room to room for three years to escape the health hazards that go with it. His kids, ages 2 and 4, can't sleep or play in their room. His wife has tossed away toys, clothes, bedding, even beds while their homeowners association grapples with the question of who will pay for an estimated $4 million worth of repairs at the 82-unit complex.

  • The Riverwalk at Redmond condo association tried to get the developer, Roger Nix, to pay for repairs, but finally gave up when it couldn't find him. Nix dissolved his company last year, and an associate said he is living in Mexico. The homeowners association filed suit in July against Nix's company in an effort to force the firm to pay for what it says is shoddy construction that has contributed to water damage in 15 units at the complex on Northeast Leary Way in Redmond. Three of the five buildings are affected. Without a legal victory or settlement with the developer, the owners of each unit could be on the hook for as much as $50,000 to replace the buildings' exteriors.

***

  • Riverwalk's situation is dramatic. But it's far from unprecedented. Attorneys specializing in construction lawsuits say condo owners across the state have been left holding the bag for millions of dollars in repairs to shoddy construction that should have been remedied by developers. And those developers often operate under corporate entities that evaporate once the project is finished.

***

  • That's the situation that Dusi and the Riverwalk board confronted after developer Nix converted an apartment complex into condominiums with an elegant Mediterranean-style facade. Some units, such as Dusi's, began showing signs of water problems almost immediately.

***

  • [Ex-project manager Kim] Steward, who owns a condo at Riverwalk, said the developer wasn't responsible for the original construction of the buildings — only the mostly cosmetic changes made to Riverwalk after he bought it. The Riverwalk conversion, she said, amounted to "putting lipstick on an elephant." "You're making it look cute," she said of the conversion, which included replacing windows and applying a new coat of stucco over the existing stucco exterior.

***

  • Vijay Dusi, who works as a software developer at Microsoft, said he cannot afford to move his family to another place and must continue to pay the mortgage and the homeowners-association dues lest he jeopardize the permanent-residency permit he applied for in 2005.

For more, see Owners worry moldy condos are unsellable — and unlivable (It will take an estimated $4 million to repair a Redmond condo complex, where water damage has riddled some units with toxic mold. But when condo owners tried to get the developer to pay, they couldn't find him: he had moved to Mexico and the original development company had been dissolved).

Escrow Agent Cops Guilty Plea For Role In Mortgage Fraud, Straw Buyer Flipping Scam Allegedly Involving Hundreds Of Condo Units Throughout California

From the Office of the U.S. Attorney (Oakland, California):
  • Donna Demello pleaded guilty in federal court in Oakland [] to conspiracy to commit wire and mail fraud for her role in a mortgage fraud scheme, United States Attorney Melinda Haag announced. At the time of the offense, Demello worked as an escrow officer at Stewart Title in Milpitas, Calif.

  • Demello, 44 of San Jose, Calif., [...] and five others, including James Delbert McConville, were charged with conspiracy to commit mail and wire fraud in violation of Title 18, United States Code, Section 1349. The Indictment alleges that McConville purchased hundreds of condominiums throughout California in the names of straw buyers, individuals who were promised $5,000 to $10,000 for the use of their names and credit. The loan applications are alleged to have contained false information about the employment, income, and assets of the straw buyers.

  • Demello admitted to participating in the fraudulent approval of approximately 80 loans for condominiums in Escondido, Calif., and San Marcos, Calif. The government has alleged in its filings that loans totaling more than $20 million were approved for the purchase of these condominiums in Southern California, and that more than $11 million of that was paid directly out of escrow to individuals and companies controlled by McConville.

For more, see Escrow Officer Admits Role In Mortgage Fraud.

For the indictment, see U.S. v. McConville, et al.

Historic Hip-Hop Birthplace May Get New Life As NYC Helps Finance Delinquent Bronx Building Loan Buy; “A Great Moment For 1520 Sedgwick": DJ Kool Herc

From The Bronx, New York, The New York Times reports:
  • Housing advocates, tenants and elected officials(1) have declared a victory in the Bronx with the announcement of the sale of the mortgage on an apartment building that has been called the birthplace of hip-hop. The sale, which was financed with significant help from city agencies, was the first step toward bringing in new owners after what tenants called an era of neglect.

***

  • The hulking brick tower at 1520 Sedgwick Avenue(2) has been a haven for generations of working-class families. In the early 1970s, a young resident named Clive Campbell, otherwise known as D.J. Kool Herc, held much-celebrated parties in the community room — parties that played a crucial role in the early evolution of hip-hop.

***

  • The building was sold in 2008 to a real estate group that included Mark Karasick, a prominent real estate investor, as part of a wave of deals in neighborhoods that had long been ignored. [...] When the real estate bubble burst, the building’s conditions deteriorated, leaving tenants to battle rats, roaches and the threats of foreclosure. [...] The city provided a $5.6 million loan to [finance the purchase of] the building’s mortgage from Sovereign Bank for $6.2 million.

***

  • Gloria Robinson, president of the Sedgwick tenants’ association, said the sale offered the prospect of much-needed relief. “It had gotten to a point where nothing was being done properly around the building,” Ms. Robinson said. “The garbage wasn’t being picked up, the floors weren’t being cleaned. It just got really, really bad. It’s like we’re starting fresh now.”

For more, see Hope for a Bronx Tower of Hip-Hop Lore.

See also: Press release from the Office of the Mayor of the City of New York: Mayor Bloomberg, Senator Schumer, Congressman Serrano, Speaker Quinn and City Housing Officials Cestero and Jahr Announce Plan to Rescue South Bronx Housing Complex.

Go here for more on the history of 1520 Sedgwick Avenue, and here for a 2007 New York Times story on 1520 Sedgwick that asks Will Gentrification Spoil the Birthplace of Hip-Hop?(4)

(1) The public announcement, which took place on September 7, drew the usual suspects: Mayor Mike Bloomberg, the never-media-shy U.S. Senator Charles E. Schumer, Congressman Jose E. Serrano, City Council Speaker Christine C. Quinn, New York City Department of Housing Preservation and Development Commissioner Rafael E. Cestero and New York City Housing Development Corporation President Marc Jahr.

(2) For those hop-hop fans planning a pilgrimage to 1520 Sedgwick in The Bronx (not to be confused with Florida's 1520 Sedgwick Avenue, located in the city of Titusville, in Brevard County), and wonder exactly where it is, it is located just north of the Cross Bronx Expressway and along the Major Deegan Expressway, little more than a stone's throw from the historic George Washington Bridge. Go here for a local street map and directions.

(3) Speaker Quinn noted DJ Kool Herc's role in the history of 1520 Sedgwick in her public statement. “Three decades ago, DJ Kool Herc mixed funk songs with African beats and rap, and hip-hop was born during a house concert in the basements of 1520 Sedgwick. Hip-hop has often been an expression of hardships and 1520 Sedgwick has seen its fair share of struggles. After the fiscal crisis, 1520 Sedgwick became a victim of predatory equity investors, and we were at risk of losing a historical and cultural landmark. But with this purchase and $3 million of Council funding for repairs, we will now see the rebirth of 1520 Sedgwick – and maybe see history created once again. I’m particularly excited that this will give tenants a chance to recreate their homes, not to mention the possibility of one day converting the building into a co-op. I want to thank the Mayor, Senator Schumer, Congressman Serrano, HPD Commissioner Cestero and HDC President Marc Jahr for continuing to think of creative solutions to save the City’s distressed buildings.”

(4) Three years later, one can say that while gentrification didn't spoil the birthplace of hip-hop, the failed attempt at gentrification almost did.

Friday, September 10, 2010

FHA Continues Doing Business With Home Loan Execs With Tainted Backgrounds???

The Washington Post reports:
  • A crackdown on reckless mortgage lenders by the Federal Housing Administration has failed to root out several executives with criminal records whose firms continue to do business with the agency in violation of federal law, according to government documents, court records and interviews.

For more, see Executives with criminal records slip through FHA crackdown, documents show.

Homeowners' Lack Of Knowledge, Confusion About Complex Homestead Protection Laws Against Certain Creditors Creates Opening For Sleazy Debt Collectors

The New York Times reports:
  • [E]ven though homestead exemptions have been on the books since the late 1800s, many people do not know about them. Tax officials, consumer credit counselors and bankruptcy lawyers said homeowners often fail to claim rightful deductions on their property taxes and are unaware that a homestead, or a significant portion of its value, is often legally protected from creditors unless the house itself is collateral on a debt like a mortgage.

***

  • The degree to which homesteads are shielded from creditors [] varies by location and sometimes by age, marital status and number of children. Homesteads in Florida, for example, are almost entirely protected from seizure by unsecured creditors (those without a lien), which is why O.J. Simpson’s home there remained in his possession even after he had several judgments against him. Had he declared his homestead in New Jersey, Maryland or Pennsylvania, his creditors could have taken his house because those states have no homestead exemption.

  • In between these extremes are states like New York, where the homestead protection from creditors is $50,000. In California, the limit is $75,000 for those younger than 65 and $175,000 for seniors and the disabled. Other states, like Kansas and Iowa, cap homestead protections at a certain amount of acreage rather than a dollar amount.(1)

***

  • Complicating things further is that in some states, such as Kentucky and New Hampshire, the homestead protection from creditors is usually a default right, while in others, such as Idaho and Washington, a legal filing is required in some instances.

***

  • Unscrupulous credit collection agencies may add to the confusion by threatening to evict debtors from their houses when that’s not legally possible. “It appalls me how many people are scared to death that they are going to be thrown out on the street because they have never heard of the homestead exemption,” said Nina Parker, a consumer bankruptcy lawyer in Winchester, Mass. Whether it’s for the tax break or protection from creditors, she said, “Best practice is to register your homestead when you buy your house.”

***

  • It’s hard to communicate what people’s homestead rights are because the laws are so complicated and there are debt collectors out there spreading misinformation,” said Katherine Porter, a professor at the University of Iowa College of Law. “Unfortunately, a complex right can be a worthless right to the consumer.”

For more, see Home is where the exemption is (if link expires, TRY HERE).

(1) Likewise in Texas and Florida.

"Schack" Rulings Merit Note In Ohio Appeals Court Ruling Reinforcing Importance To Borrower That Promissory Note's Chain Of Title Be Established

In recent, apparently high stakes litigation(1) in which a lower court's ruling dismissing a lender's foreclosure action was affirmed, an Ohio Court of Appeals issued a reminder of how essential it is to the borrower (ie. the "maker" or "obligor" of the note) that the lender prove it is the proper holder of the promissory note being enforced.

In addition, it cited several rulings from Kings County (Brooklyn), New York Supreme Court Justice Arthur M. Schack to "indict" the lender in this case (HSBC Bank) and its "confederates" (Ocwen, Delta Funding Corporation, and Mortgage Electronic Registration Systems, Inc. - "MERS" ) for their history of apparent sloppiness when bringing foreclosure actions.(2)

Beginning at paragraph 71 of the Ohio appellate court ruling:

  • Thompson contends that because the last-named endorsement is made to Delta, Delta was the proper holder of the note when this action was filed, since the prior, first-named endorsement was from an entity other than the current holder of the note. In Adams v. Madison Realty & Development, Inc. (C.A.3, 1988), 853 F.2d 163, the Third Circuit Court of Appeals stressed that from the maker's (obligor's) standpoint:

    "it becomes essential to establish that the person who demands payment of a negotiable note, or to whom payment is made, is the duly qualified holder. Otherwise, the obligor is exposed to the risk of double payment, or at least to the expense of litigation incurred to prevent duplicative satisfaction of the instrument. These risks provide makers with a recognizable interest in demanding proof of the chain of title." Id. At 168.

  • The Third Circuit Court of Appeals further observed that:

    "Financial institutions, noted for insisting on their customers' compliance with numerous ritualistic formalities, are not sympathetic petitioners in urging relaxation of an elementary business practice. It is a tenet of commercial law that `[h]oldership and the potential for becoming holders in due course should only be accorded to transferees that observe the historic protocol.'" 853 F.2d at 169 (citation omitted).

  • Consistent with this observation, recent decisions in the State of New York have noted numerous irregularities in HSBC's mortgage documentation and corporate relationships with Ocwen, MERS, and Delta. See, e.g., HSBC Bank USA, N.A. v. Cherry (2007), 18 Misc.3d 1102(A), 856 N.Y.S.2d 24 (Table), 2007 WL 4374284, and HSBC Bank USA, N.A. v. Yeasmin (2010), 27 Misc.3d 1227(A), 2010 N.Y. Slip Op. 50927(U)(Table), 2010 WL 2080273 (dismissing HSBC's requests for orders of reference in mortgage foreclosure actions, due to HSBC's failure to provide proper affidavits). See, also, e.g., HSBC Bank USA, N.A. v. Charlevagne (2008), 20 Misc.3d 1128(A), 872 N.Y.S.2d 691 (Table), 2008 WL 2954767, and HSBC Bank USA, Nat. Assn. v. Antrobus (2008), 20 Misc.3d 1127(A), 872 N.Y.S.2d 691,(Table), 2008 WL 2928553 (describing "possible incestuous relationship" between HSBC Bank, Ocwen Loan Servicing, Delta Funding Corporation, and Mortgage Electronic Registration Systems, Inc., due to the fact that the entities all share the same office space at 1661 Worthington Road, Suite 100, West Palm Beach, Florida. HSBC also supplied affidavits in support of foreclosure from individuals who claimed simultaneously to be officers of more than one of these corporations.).

__________________________

The Ohio appeals court adds this observation at paragraph 81 of its ruling (Note that Ocwen Loan Servicing's notorious, seemingly omnipresent, multiple corporate hat-wearing vice president Scott Anderson receives an "honorable" mention for his role in this case):

  • Even if HSBC had provided support for the proposition that ownership of the note is not required, the evidence about the assignment is not properly before us. The alleged mortgage assignment is attached to the rejected affidavits of Neil. Furthermore, even if we were to consider this "evidence," the mortgage assignment from MERS to HSBC indicates that the assignment was prepared by Ocwen for MERS, and that Ocwen is located at the same Palm Beach, Florida address mentioned in Charlevagne and Antrobus. See Exhibit 3 attached to the affidavit of Chomie Neil.

  • In addition, Scott Anderson, who signed the assignment, as Vice-President of MERS, appears to be the same individual who claimed to be both Vice-President of MERS and Vice-President of Ocwen. See Antrobus, 2008 WL 2928553, * 4, and Charlevagne, 2008 WL 2954767, * 1.(3)

For the entire ruling, see HSBC Bank USA v. Thompson, 2010 Ohio 4158 (2nd App. Dist., Montgomery County, September 3, 2010).

(1) The stakes in this case, which by all appearances involved nothing more than your standard, run-of-the-mill "lack of standing" and "real party in interest" claims, were apparently somehow ratcheted up significantly along the way as it attracted enough interest from the Ohio Attorney General's office to cause it to jump into the fray and file a "friend of the court" brief supporting the homeowner's position.

Further, a second amicus brief, also supporting the homeowner's position, was filed on behalf of six non-profit legal and consumer advocates, who also wanted to get in on the action.

Not to be outdone, in addition to being represented by local counsel, the foreclosing lender also called in the Washington, D.C. office of some big-shot, white shoe law firm for additional artillery (apparently to no avail).

(2) For links to some of Justice Schack's rulings booting sloppy foreclosing lenders from his courtroom, see:

Go here for other posts referencing Justice Schack.

(3) For some of the cases in which Scott Anderson receives mention for his multiple corporate hat-wearing role, see:

Judge Calls Off Tax Foreclosure Sale, Gives Homeowner Extension To Cough Up Cash After Finding Temporary Legal Incapacitation Prevented Payment

In Berrien County, Illinois, WSJM Radio 94.9 FM reports:
  • The owner of a lakefront home in Saint Joseph that was almost auctioned off by the Berrien County Treasurer's office won a break in court last week. According to the Herald Palladium, the Lakeshore Drive home of Tony Basso, of Chicago, will not be offered as part of a tax foreclosure auction on September 21st, after all. The treasurer's office had previously said that property taxes on the home were not paid for about three years and that Basso had all but abandoned the place.

  • However, Berrien County Trial Court Judge John Dewane decided last week that Basso was legally incapacitated and unable to attend to his affairs during that period. As such, he was entitled to some relief.

  • Basso, who is 82, told the court that he went to Italy about five years ago to help with family problems, leaving money with his son in Chicago to take care of the home in Saint Joseph, which is worth about 500-thousand dollars. The son failed to do so, but Basso couldn't manage the issue due to health problems. He now has until October first to pay the back taxes, and pay back the city of Saint Joseph for lawn mowing it's done for him at the property.

Source: Foreclosed Homeowner Gets A Break In Court.

Thursday, September 09, 2010

Ohio Appeals Court Boots Promissory Note-Lacking Lender As State AG, Six Non-Profits Jump Into (Apparently) High-Stakes Fray In Support Of Homeowner

A recent decision ruling by an Ohio Court of Appeals affirmed a lower court's ruling:
  • striking the affidavit of an employee of a loan servicer (identified as a manager of trial preparation and discovery for Ocwen Loan Servicing) acting as servicing agent of the purported lender (HSBC Bank, as Trustee for ..., etc., etc.) that brought a foreclosure action because of defects in the affidavit;

  • refusing to consider the Ocwen employee's restated affidavit, in the course of deciding objections to the magistrate's decision, because HSBC failed to indicate why it could not have properly submitted the evidence, with reasonable diligence, before the magistrate had rendered a decision in the matter; and

  • rendering summary judgment against HSBC, and dismissing the foreclosure action for lack of standing because HSBC failed to establish that it was (a) the real party in interest to bring the suit, and (b) the holder of the promissory note secured by the mortgage being foreclosed.

The stakes in this case, which by all appearances involved nothing more than your standard, run-of-the-mill "lack of standing" and "real party in interest" claims, were apparently somehow ratcheted up significantly along the way as it attracted enough interest from the Ohio Attorney General's office to cause it to jump into the fray and file a "friend of the court" brief supporting the homeowner's position.

Further, a second amicus brief, also supporting the homeowner's position, was filed on behalf of six Ohio non-profit legal and consumer advocates, who apparently also wanted to get in on the action.(1)(2)

Among the points the appeals court had problems with, and that sunk the lender in this case were:

  • In the original affidavit filed on behalf of HSBC, the Ocwen employee averred "[t]hat he had executed it in Palm Beach, Florida. However, the notation at the top of the first page of the affidavit and the jurat both state that the affidavit was sworn to and subscribed to in New Jersey, before a notary public." (see paragraph 11 of the ruling);

  • With respect to the restated affidavit, "The affidavit was identical to what was previously submitted, except that the first page indicated that the affidavit was being signed in Palm Beach County, Florida. The jurat is signed by a notary who appears to be from Florida, although the notary seals on the original and copy that were submitted are not very clear. HSBC did not offer any explanation for the mistake in the original affidavit." (see paragraph 15 of the ruling);

  • Regarding copies of a pair of purported, undated "allonges" submitted as loose papers to the court by the servicer accompanying a purported copy of the promissory note, there was no evidence that the allonges were ever affixed to the note as required under Ohio law; and further, the order in which the purported allonges were submitted did not support HSBC's claim that it was the holder of the promissory note.(3)

For the entire ruling, see HSBC Bank USA v. Thompson, 2010 Ohio 4158 (2nd App. Dist., Montgomery County, September 3, 2010).

(1) The Ohio non-profit heavyweights who chimed in with their support of the homeowner's position were:

(2) Not to be outdone, in addition to being represented by local counsel, the foreclosing lender also called in the Washington, D.C. office of some national, big-shot, white shoe law firm for additional artillery (apparently to no avail).

(3) In this regard, the appellate court stated (at pargraphs 67-70):

  • {¶ 67} In contrast to Watson, no evidence was presented in the case before us to indicate that the allonges were ever attached or affixed to the promissory note. Instead, the allonges have been presented as separate, loose sheets of paper, with no explanation as to how they may have been attached. Compare In re Weisband, (Bkrtcy. D. Ariz., 2010), 427 B.R. 13, 19 (concluding that GMAC was not a "holder" and did not have ability to enforce a note, where GMAC failed to demonstrate that an allonge endorsement to GMAC was affixed to a note. The bankruptcy court noted that the endorsement in question "is on a separate sheet of paper; there was no evidence that it was stapled or otherwise attached to the rest of the Note.")

  • {¶ 68} It is possible that the allonges in the case before us were stapled to the note at one time and were separated for photocopying. But unlike the alleged creditor in Watson, HSBC offered no evidence to that effect. Furthermore, assuming for the sake of argument that the allonges were properly "affixed," the order of the allonges does not permit HSBC to claim that it is the possessor of a note made payable to bearer or endorsed in blank.

  • {¶ 69} The first allonge is endorsed from Delta to "blank," and the second allonge is endorsed from Fidelity to Delta. If the endorsement in blank were intended to be effective, the endorsement from Fidelity to Delta should have preceded the endorsement from Delta to "blank," because the original promissory note is made payable to Fidelity, not to Delta. Delta would have had no power to endorse the note before receiving the note and an endorsement from Fidelity.

  • {¶ 70} HSBC contends that the order of the allonges is immaterial, while Thompson claims that the order is critical.

Court Hammers Alleged Loan Modification Racket With $100K Judgment; 2nd Score Against Foreclosure Rescue Operators In Recent Weeks For Wisconsin AG

In Dane County, Wisconsin, the Milwaukee Journal Sentinel reports:
  • A Dane County circuit judge has ordered the California-based Federal Loan Modification Center LLP to pay $105,754 and to stop doing business illegally in Wisconsin, Attorney General J.B. Van Hollen said [].

  • Van Hollen said in a statement that the company falsely presented itself as part of a federal program offering to help distressed homeowners modify their loans and stave off foreclosure. The firm collected as much as $3,500 in fees from Wisconsin homeowners, then failed to provide promised services or refunds, Van Hollen said.

***

  • The state Justice Department last week won a $111,861 judgment against another California company, Relief Law Center Inc. for violating consumer protection laws in soliciting homeowners for purported loan modification services.(1) In that case, the solicitations were designed to appear as though the firm was a loan auditor investigating the homeowner's lender, Van Hollen said.

Source: Loan firm told to pay $105,754.

(1) See Van Hollen Announces Judgment Against USA Loan Auditors.

State Regulator Orders Two Suspected Loan Modification Outfits To Cease & Desist As Sheriff's Deputies Execute Search Warrants On Companies' Records

In Northern Florida, The Florida Times Union reports:
  • The Florida Office of Financial Regulation ["OFR"] and Clay County Sheriff's Office [] ordered two Clay County mortgage loan modification companies to cease business and served search warrants on their records, the two agencies announced.

  • The two companies closed were Global Equity Solutions, [...] in Middleburg, and Hope Financial Services, [...] in Orange Park. The OFR served immediate cease and desist orders barring the companies from doing business as the sheriff's office executed the search warrants. Names were not released because charges are pending further investigation, the agencies said.

***

  • OFR investigators found the two companies marketed their services throughout the country via websites, mass mailings and a telephone call center. The companies have about 250 open contracts, where they received between about $1,200 and $1,800 up front first. Those who perform loan modifications in Florida without an active license are subject to being slapped with felony charges punishable by up to five years in prison and a fine as much as $5,000 per offense, [OFR communications director Flora] Beal said.

For the story, see State regulators shut down loan modification companies in Clay County.