Ally/GMAC Told Freddie Of Dubious Documents Weeks Before Slamming Brakes On Its Own Foreclosures

Bloomberg News reports:

• Ally Financial Inc.’s GMAC Mortgage unit told Freddie Mac that foreclosures by the auto and home lender might have been faulty weeks before halting its own evictions, according to two people briefed on the matter.

• Ally informed Freddie Mac on Aug. 25 that affidavits for court proceedings might not be valid, according to a person with direct knowledge of the matter. By Sept. 1, Freddie Mac had notified its network of lawyers and stopped related foreclosures and evictions, said the person, who declined to be identified because the matter hasn’t been formally disclosed. GMAC told agents to halt evictions in 23 states on Sept. 17.

For more, see Ally Said to Tell Freddie Mac of Faulty Foreclosures Weeks Ago.

Texas, Iowa AGs Open Probe Into Ally/GMAC Foreclosure Practices

Bloomberg News reports:

• Attorneys general in Texas and Iowa, following Florida, have started their own investigations into foreclosure practices at Ally Financial Inc.’s GMAC mortgage unit.

• “The integrity of the foreclosure process is of utmost importance and we are very concerned by the issues that have been raised regarding Ally Financial’s treatment of affidavits,” Iowa Assistant Attorney General Patrick Madigan said yesterday. Iowa leads an 11-state working group of attorneys general and bank examiners exploring ways to prevent foreclosures.

• Texas Attorney General Greg Abbott opened an investigation “early this month,” said Tom Kelley, a spokesman for the office.(1) Iowa and Texas follow an announcement by Florida Attorney General William McCollum, who last month said he was investigating three Florida law firms handling foreclosures.

For more, see Texas, Iowa Attorneys General Probe Foreclosure Actions by Ally's GMAC.

(1) Texas is a non-judicial foreclosure state, and is not one of the 23 states originally included by Ally/GMAC in their list of states affected by their foreclosure "suspension/moratorium."

Dubious Docs Begin Surfacing In Ally/GMAC's 27 Non-Foreclosure Moratorium States, Leaving Homeowners Across Country Scrambling To Challenge F'closures

The Washington Post reports:

• Flawed foreclosure documents like those that led mortgage lender Ally Financial [the outfit formerly known as GMAC] to halt evictions in 23 states this week are showing up in parts of the country previously thought to be unaffected, including the Washington area, according to attorneys and consumer advocates.

• Ally Financial has not called off evictions in the other 27 states or the District of Columbia, none of which require a court order to initiate a foreclosure. And yet in those places, distressed borrowers, on the brink of losing their homes, are finding flawed and forged documents in their files and scrambling to challenge foreclosure proceedings.

***

• In Maryland, Virginia, the District and 25 other states in which lenders do not need a court order, homeowners challenging foreclosure proceedings face an uphill battle. In those places, a bank needs only to file papers with a local court official after giving a borrower sufficient notice. It's up to the homeowner to sue the lender to stop the process.

***

• Generally speaking, delinquent borrowers have a better chance of keeping their homes in judicial foreclosure states because of the involvement of judges who appear to have wide discretion over how to handle shoddy or forged foreclosure papers. The system in the other states creates "enormous barriers for homeowners who want to assert legal claims and raise a defense," a report from the National Consumer Law Center concluded.(1)

For more, see Ally's mortgage documentation problems could extend beyond 23 states.

(1) See Foreclosing A Dream: State Laws Deprive Homeowners of Basic Protections (page 4).

Florida Appeals Court Says No Way To Rubber-Stamping Trial Judge "Nabbed" Improperly Striking Homeowner's Pleadings In Foreclosure Action

A Florida appeals court recently reversed another rubber-stamped summary judgment in a foreclosure action. This time, the state's 3rd District Court of Appeal reversed a ruling by Miami-Dade County Circuit Court Judge Mark King Leban who, on his own motion ("sua sponte"), improperly struck all of the pleadings filed by a homeowner/defendant, and then granted summary judgment for the foreclosing lender.(1)

Bringing this appeal on behalf of the homeowner were attorneys John H. Ruiz and Hector A. Peña (go here for website in Spanish), Miami, Florida.

For the ruling, see Sanchez v. LaSalle Bank National Association, No. 3D09-2095 (Fla. App. 3rd DCA, September 22, 2010).

(1) In reaching its conclusion, the court simply stated the following ("Fla. R. Civ. P." is a reference to the Florida Rules of Civil Procedure; bold text is my emphasis, not in the original text):

• Generally, the striking of pleadings is not favored. See, e.g., Menke v. Southland Specialties Corp., 637 So. 2d 285 (Fla. 2d DCA 1994); Costa Bell Dev. Corp. v. Costa Dev. Corp., 445 So. 2d 1090 (Fla. 3d DCA 1984).

• Florida Rules of Civil Procedure authorize a trial court sua sponte to strike a pleading which is "redundant, immaterial, impertinent or scandalous," and, upon a party's motion, a pleading which is sham. Fla. R. Civ. P. 1.140(f), 1.150.

• A trial court, however, should not strike a pleading sua sponte on the ground that it is legally insufficient, or because the party subsequently may not be able to prove his or her allegations. Bay Colony Office Bldg. Joint Venture v. Wachovia Mortgage Co., 342 So. 2d 1005 (Fla. 4th DCA 1977).

• Here, the trial court, on its own motion, struck Sanchez' affirmative defenses without finding them redundant, immaterial, impertinent, scandalous or a sham. Apparently, the trial court deemed the defenses to be lacking in specificity and support. Neither of these grounds warrants the sua sponte dismissal of Sanchez' affirmative defenses. Accordingly, we reverse the final summary judgment, and remand the cause for further proceedings.

Volunteer Lawyers' Efforts Help Shine Light On Shoddy Mortage Servicing Practices In Foreclosure Actions

In Portland, Maine, The Portland Press Herald reports:

• Two Maine lawyers who help homeowners fight foreclosures may have contributed to a decision this week by one of the nation's largest mortgage-servicing companies to stop foreclosing on homes in 23 states, including Maine.

• Thomas Cox(1) of South Portland and Geoffrey Lewis of Fryeburg said Wednesday that the shoddy legal practices that led to the temporary halt appear to be common in an industry that is swamped by troubled loans. [...] Cox and Lewis volunteer with a legal defense group called Maine Attorneys Saving Homes. About 6,000 foreclosures a year have been filed recently in Maine, and the advocacy group estimates that only one in 10 homeowners is represented by a lawyer.

For more, see Maine lawyers help uncover mishandled foreclosures (Now they're trying to get a summary judgment in a GMAC case nullified to keep a Denmark woman in her home).

(1) For more on Thomas Cox, see Retired Maine Attorney Joins Fight Against Foreclosures; Volunteers Services With Local Legal Aid Program.

Other Multiple Corporate Hat Wearing Vice Presidents Begin To Share The Spotlight

The Washington Post reports:

• The nation's overburdened foreclosure system is riddled with faked documents, forged signatures and lenders who take shortcuts reviewing borrower's files, according to court documents and interviews with attorneys, housing advocates and company officials. The problems, which are so widespread that some judges approving the foreclosures ignore them, are coming to light after Ally Financial, the country's fourth-biggest mortgage lender, halted home evictions in 23 states this week.

***

• Beth Ann Cottrell said in a sworn deposition in May(1) that she signed off on thousands of foreclosures a month for JPMorgan Chase even though she did not verify the accuracy of the information. In one instance in Palm Beach, Fla., Cottrell signed off on two documents that stated conflicting amounts of mortgage, the court testimony states. Cottrell claimed that both were signed by the borrower at closing. But the homeowner recognized that her signature had been forged, her attorney Christopher Immel said. The attorney added that such forgeries are common among the cases he's seen. JPMorgan Chase declined to comment.

• In Georgia, an employee of a document processing company, Linda Green, for years claimed to be executives of Bank of America, Wells Fargo, U.S. Bank and dozens of other lenders while signing off on tens of thousands of foreclosure affidavits.

• In many cases, her signature appeared to be forged by different employees.(2) Green worked for a foreclosure document company owned by Lender Processing Services. The company is being investigated by a U.S. attorney in Florida for allegedly using improper documentation to speed foreclosures. Lenders have already started to withdraw foreclosures that had Green's name on them.

• Green also submitted to courts documents that listed "Bogus Assignee" as the owner of a mortgage instead of the real name. In another case, she signed as the vice president of "Bad Bene," a made-up company.(3)

For the story, see Under piles of paperwork, a foreclosure system in chaos.

(1) See May 17, 2010 deposition of Beth Ann Cottrell (available online courtesy of Mother Jones).

(2) Go here for examples of Linda Green's changing signature.

(3) Green has also been known to have signed at least one assignment of mortgage with an effective date of 9/9/9999 (see 4closurefraud.org - document titled - "DOCX Assignment of Mortgage 3 Effective 09-09-9999").

"Robo-Signers" Masquerading As Multiple Corporate-Hat-Wearing Vice Presidents Just "Affidavit Slaves" With Modest Incomes, Mountainous Workloads

A recent story in The Washington Post describes the multiple corporate-hat wearing vice presidents employed by foreclosing lenders, servicers, foreclosure mills, etc. around the country in this excerpt:

• Many large mortgage lenders have come to rely on a relative handful of so-called robo-signers [...] to attest to the accuracy of thousands of home foreclosure documents across the country. These workers are not the Wall Street masterminds who created ever more complex mortgage-backed securities and fueled the subprime mortgage boom, but rather "affidavit slaves" with modest incomes and mountainous workloads.

• Their actions are leading lawyers representing foreclosed homeowners to claim that lenders have no legal standing if the filings weren't reviewed and verified, and to argue that the cases should be thrown out.

For the story, see 'Robo-signer' played quiet role in huge number of foreclosures.

Use Of Robo-Signers In Foreclosure Actions Not New For GMAC/Ally; Earlier Case Required Servicer To Cough Up $8K In Fees To Homeowner's Attorney

Bloomberg News reports:

• Ally Financial Inc.’s GMAC Mortgage unit, which suspended evictions in 23 states last week after finding employees didn’t verify foreclosure documents, was sanctioned in 2006 for similar practices, court records show.

• GMAC gave “false testimony” when it justified foreclosures by submitting sworn affidavits signed by a mortgage executive who later said in a deposition she didn’t actually review the loan documents or sign in the presence of a notary, according to a 2006 court order filed in Duval County, Florida.

***

• The 2006 case stems from a GMAC Mortgage foreclosure that began in August 2004 on a home owned by Robert and Lillian Jackson. The filing included an affidavit signed by a GMAC officer laying out the amount owed on the loan.

• Florida Circuit Court Judge Bernard Nachman sanctioned GMAC in May 2006, saying that the company “submitted false testimony to the court in the form of affidavits of indebtedness.” The company was ordered to submit an explanation and confirmation that the policies were changed, and told to pay defendants’ legal costs of $8,135.55.(1)

***

• “They’re acting like this is a new problem,” said O. Max Gardner III, a bankruptcy attorney at Gardner & Gardner PLLC in Shelby, North Carolina, who isn’t directly involved in either GMAC case. “It’s the exact same thing,” Gardner said. “This is not just a GMAC problem. This is an industry-wide problem.”

For more, see GMAC Drew 'False Testimony' Sanction Years Before Eviction Halt.

(1) I suspect that Florida foreclosure defense attorneys are getting their motions ready for attorneys fees requests when courts begin dismissing foreclosures based on these bogus documents. In Florida, where an agreement allows for an attorney fee award to one of the contracting parties, state statute mandates an award of prevailing party attorney's fees to the other party under the reciprocity provisions of section 57.105(7), Florida Statutes; Landry v. Countrywide Home Loans, Inc., 731 So. 2d 137 (Fla. 1st DCA 1999).

Not only might the lender and servicer be court-ordered to cough up fees to the homeowners' attorneys, it's possible that the foreclosure mill law firms representing the lenders/servicers (at least in Florida) may also be ordered to foot part of the tab as well by reason of section 57.105(1), Florida Statutes:

• Upon the court’s initiative or motion of any party, the court shall award a reasonable attorney’s fee, including prejudgment interest, to be paid to the prevailing party in equal amounts by the losing party and the losing party’s attorney on any claim or defense at any time during a civil proceeding or action in which the court finds that the losing party or the losing party’s attorney knew or should have known that a claim or defense when initially presented to the court or at any time before trial:
  
  (a) Was not supported by the material facts necessary to establish the claim or defense; or
  (b) Would not be supported by the application of then-existing law to those material facts.

(For an old (July/August,2000) article in The Florida Bar Journal that may be of some value in providing guidance to lawyers in requesting court-ordered, prevailing party attorneys fees from losing defendants (ie. lenders, servicers, etc.), see Pleading Requirements for a Claim for Attorneys' Fees.)

Federal Commission: Florida Played Starring Role In Mortgage Fraud Problem That Led To Untold Trillion$ In Crappy Loans

In Miami, Florida, The Miami Herald reports:

• Mortgage fraud is responsible for untold trillions of dollars in bad loans currently defaulting across the country, and Florida has played a starring role in the tragedy, a federal commission said during a hearing in Miami on Tuesday.

• A panel of national and local experts sat before the federal Financial Crisis Inquiry Commission during a hearing focused on liar's loans, predatory mortgage practices and shady home appraisals. They concluded that the financial impact of the fraud was more severe than most have estimated, and prosecuting those responsible will be nearly impossible.

For more, see Florida led nation in mortgage fraud, federal commission says (Experts discussed Florida's multibillion-dollar mortgage fraud problem during a hearing hosted by the federal Financial Crisis Inquiry Commission).

Four Pinched On Grand Theft, Forgery Charges; Used Stolen I.Ds To Obtain Homes, Mtgs: Cops; Victims Discover Scam When Stiffed Banks Sought Repayment

From the Office of the San Bernardino, California District Attorney:

• On Monday, September 13, 2010, Ray Gross, 46, of Victorville, was arrested at his residence by San Bernardino County Sheriff’s deputies for real estate fraud charges. Gross was arrested for numerous felony counts including grand theft, forgery, and filing forged documents with the County Recorder’s Office. The San Bernardino County District Attorney’s Real Estate Fraud Unit conducted the investigation.

• Within the last few weeks, other co-conspirators were arrested on similar charges. Those arrested were: Freddie Gross, 52, of Fontana, Lyall Alexander, 42, of Victorville, and Barbara Kimberling, 46, of Riverside.

• In 2007, the suspects conspired to obtain real estate loans by fraudulently using the identity of three victims. The loans encumbered properties located in Victorville, Riverside, and Ridgecrest. The victims’ signatures were forged on Grant Deeds and Deeds of Trust. The fraudulent loans totaled over $600,000.

• The victims had no knowledge of these loans until months later when they were contacted by lending institutions for lack of payment. The suspects have been booked into the San Bernardino County Sheriff’s jail facilities. Bail for Gross is set at $1,700,000.

Source: Victorville Man Arrested on Real Estate Fraud Charges.

Forced Placed Insurance Drives Central Florida Homeowner Into F'closure; Loan Servicer Backpeddles On Initial Demands After Inquiries From Local Media

In Port Richey, Florida, WFTS-TV Channel 28 reports:

• A Port Richey homeowner nearly lost his house not once but twice to foreclosure. Mark Poulsen said it had nothing to do with his payment history, but rather a new insurance policy.

***

• About the same time when Mark lost his job, he says, CITI bank attached a $5,000 wind policy to his home. "My normal payment was $749 a month and the next statement shows $1,886 a month,” he said. Poulsen fell behind, and within months the bank served the family with foreclosure papers. “It was devastating I could not sleep at night.”

• Mark's story then took a cruel twist. He says CITI worked out a deal with him. He paid them $3500 they were suppose to bring his account current and drop the foreclosure. Months later, this homeowner claims CITI called and backed out of that deal. "It was a nightmare, a total nightmare.”

• After listening to Mark's story, [ABC Action News consumer advocate] Jackie Callaway emailed CITI bank's corporate office and asked them to review the account. A spokesperson responded in an email saying, "If the property owner does not maintain this and other required forms of insurance ... we will obtain lender-placed gap insurance on the homeowner's behalf. Failure to reimburse us for coverage can result in delinquencies on the account.”

• Weeks later, CITI bank put another offer in writing. They excused Marks' delinquent fees and made his account current. He now has his own affordable wind policy on the house that meets CITI’s requirements.

For the story, see A man nearly loses his house in a mortgage insurance mess.

Foreclosure Mills Begin Filing Motions To Withdraw Previously Filed Court Documents Signed By Loan Servicers' "Affidavit Slaves"

Mother Jones reports:

• Christopher Immel, an attorney for Ice Legal, a Florida foreclosure defense firm, said each and every foreclosure that relied on an affidavit signed by GMAC's [Jeffrey] Stephan is shrouded in doubt.(1) "People who lost their homes to evidence like that did have their homes taken wrongly," he says. Indeed, Immel tells Mother Jones that one major Florida foreclosure law firm, Florida Default Law Group, has already begun withdrawing affidavits signed by Stephan knowing that they're faulty and ripe for challenging.

• Immel adds that the effects of GMAC's decision to revisit foreclosures involving tainted legal documents could ripple throughout the housing industry. For instance, in May, another Ice Legal attorney took the deposition of Chase's [Beth] Cottrell, whose firm is a subsidiary of JPMorgan Chase. In that deposition, Cottrell similarly conceded that she didn't have the "personal knowledge" required to sign the foreclosure documents that crossed her desk.(2)

***

• [O]ne judge in central Florida told Mother Jones that, in the past week, she's seen attorneys representing several other big banks file what she called "mysterious" motions to proactively withdraw foreclosure affidavits. The firms say the affidavits "may not have been properly verified"—the same problem with the documents at the heart of GMAC's headaches.

• Having never seen a spate of withdrawals like this before, the judge, Pasco County's Lynn Tepper, questioned whether other banks might be hoping to avoid the kind of public scrutiny now on GMAC by quietly clearing up conflicts with robo-signed documents. Tepper called the motions "unbelievable," and said she might seek to vacate foreclosures—instead of merely delaying them—where banks try to swap out bogus documents for new ones.

For the story, see A Crack In Wall Street's Foreclosure Pipeline?

(1) Reportedly, in a June deposition, Stephan said his outfit handled 6,000 to 8,000 of these documents each month. Yet under questioning, Stephan all but admitted, under oath, that he didn't really read those crucial documents or know what they precisely said [...].

(2) For more on Cottrell, see Financial Times: Staff says bank foreclosures went unchecked:

• In one case signed off on by Ms Cottrell, two separate promissory notes were presented as originals, even though they contained different clauses and monthly payments. “They are clearly two different notes,” said Chris Immel, one of the lawyers. “That is not what I’d considered a technicality.”

Loan Modification Operator Denies Taking Upfront Fees; Says Money Taken Was For "Attorney Fees"

In Kansas City, Missouri, The Kansas City Star reports on Livonia, Michigan's Expert Financial Services, a loan modification outfit, led by its chief - Rick White, that has been accused of ripping off some local homeowners out of thousands in upfront fees. The following excerpt describes his responses to allegations when contacted by the media:

• White didn’t return my call to his office or answer an e-mail I sent him. But a former employee who said she was owed back pay gave me his cell phone number, and we talked for a while the other day. He refused to discuss Diane’s situation or discuss his business practices in general, other than to say that upfront fees he charges are for “attorney’s fees” and not for the mortgage modification process.

***

• Well, you might be interested to know that the Michigan attorney general’s office has received at least 10 complaints about the same company, which has been in business for less than a year.(1) Those complaints are “under review,” an official said. Meanwhile, the Better Business Bureau gives Expert Financial Services an “F” rating. On the Internet, you’ll find scads of bad reviews from former customers.

For the story, see Foreclosure rescue schemes a costly trap for homeowners.

(1) Inasmuch as the Michigan Attorney General's office has shown no reluctance in bringing criminal charges against alleged loan modification scams, it may simply be a matter of time before it gets around to slamming this outfit. See:

• Michigan AG Files 19 Criminal Complaints Setting Forth 69 Charges Against Individuals, Firms Running Alleged Advanced-Fee Loan Modification Operations,
• Michigan AG Files Criminal Charges In Separate Cases Alleging Loan Modification Firms Clipped Homeowners For Upfront Fees, Then Failing To Help (involving three criminal complaints containing a total of ten charges).

Fannie Agrees To Rescind Foreclosure For Virginia Family After Recent "Post" Article; Says Chase Botched Loan Modification Application Process

In Prince William County, Virginia, The Washington Post reports:

• Chase -- the bank that foreclosed on the home of a Prince William County couple caring for their gravely ill child -- has reversed the foreclosure and offered to modify the family's mortgage, the bank said Friday.

***

• Chase, which was administering the loan for mortgage finance giant Fannie Mae, mishandled the application for assistance under the federal mortgage relief program, a spokeswoman for Fannie Mae said Friday.

• Early this month, just days before the house was to be sold in foreclosure, Chase told the Waleses that they had been approved for a modification under the federal Making Home Affordable Program. But the promised documents never arrived, and on Sept. 8, the house was sold back to Fannie Mae.

• In fact, the family might not have qualified under the program's income limits. But under Fannie Mae protocols, Chase should have offered modification options before weighing more drastic options, such as a short sale and foreclosure.

• After the family's plight was described in an article Friday in The Washington Post, Chase and Fannie Mae began investigating and concluded that the case had been botched. "Fannie is frustrated when we learn of individual cases where servicers do not properly process modification applications, and families . . . pay the price," Fannie Mae spokeswoman Amy Bonitatibus said. "In this instance, the situation was not handled properly," Bonitatibus said.

For the story, see Bank reverses foreclosure for Va. family with very ill child.

GMAC's Use Of "Affidavit Slave" May Affect Hundreds Of F'closing Lenders Using Firm To Service Mortgages, Opening Door For Challenges Across Country

The Washington Post reports:

• Some of the nation's largest mortgage companies used a single document processor who said he signed off on foreclosures without having read the paperwork - an admission that may open the door for homeowners across the country to challenge foreclosure proceedings.

• The legal predicament compelled Ally Financial, the nation's fourth-largest home lender, to halt evictions of homeowners in 23 states this week. Now Ally officials say hundreds of other companies, including mortgage giants Fannie Mae and Freddie Mac, may also be affected because they use Ally to service their loans.

• As head of Ally's foreclosure document processing team, 41-year-old Jeffrey Stephan was legally required to review cases to make sure the proceedings were justified and the information was accurate. He was also required to sign in the presence of a notary. In a sworn deposition, he testified that he did neither.

***

• Stephan's job at Ally was arguably one of the least enviable in the mortgage business: formally signing off on foreclosure papers that his company would submit to the courts to get approval to evict delinquent homeowners and resell their homes.

• From his office in suburban Philadelphia, Stephan oversaw a team of 13 employees that brought documents to him for his signature at a rapid clip. Stephan did not respond to messages left at his work and home. His official title was team leader of the document execution unit of Ally's foreclosure department, but consumer advocates call him the company's "super robot signor" or "affidavit slave."

• In sworn depositions taken in December and June for two separate court cases involving families trying to keep their homes, Stephan revealed his shortcuts when reviewing the files. He said he would glance at the borrower's names, the debt owed and a few other numbers but would not read through all the documents as legally required. He would then sign them. The files were packed up in bulk and sent off for notarization several days later. Stephan testified he did not know how the "summary judgment" affidavits he signed were used in judicial foreclosure cases.

***

• Christopher Immel, an attorney in Florida who deposed Stephan for a case in Palm Beach County, said he thinks Stephan was not a rogue employee but one that was performing his job responsibilities as the company told him to do. "GMAC has a business model to do this, and Stephan was just one small part of it," Immel said. "He was under the impression it was okay to do this."

For more, see Ally Financial legal issue with foreclosures may affect other mortgage companies.

In a related story, see Mother Jones: A Crack In Wall Street's Foreclosure Pipeline?

Use Of Special Addendums & Bank-Designated Title Agents When Dumping REOs Mark Wave To Unload Defectively-Titled F'closed Homes Onto Unwitting Buyers?

Naked Capitalism reports:

• Another ticking time bomb in the realm of real estate bad behavior is bound to go off sooner rather than later, and it is likely to impede normalization of values of residential property.(1)

For more, see Latest Real Estate Time Bomb: Title of Foreclosed Properties Clouded; Wells Fargo Dumping Risk on Hapless Buyers.

(1) The story revolves around the use of a certain type of contract addendum (go here for Standard Form REO Addendum) sprung on prospective buyers at the "11th hour" by lenders selling recently-foreclosed homes, coupled with the use of title insurance policies containing a special clause that renders the policy worthless (providing no protection to the buyer) if the foreclosure action is subsequently found to be void (because of legal defects, irregularities, fraud, etc.) in order to shift all the risk of buying these "pink elephants" onto the unwitting buyer (unwitting, but not necessarily unsophisticated - the level of sophistication needed to spot this scam is probably beyond the scope of most lawyers who aren't real estate specialists).

Florida Congressman Asks State Chief Justice To Slam Brakes On Potentially Lawless Foreclosure Mill Seizures

The Florida Independent reports:

• Citing the reporting of Mother Jones and the New York Times, Congressman Alan Grayson has sent a letter calling on the Chief Justice of the Florida Supreme Court to “abate” foreclosure cases involving three law firms currently under scrutiny from the Office of Attorney General Bill McCollum until the investigation is complete.

• “If the reports I am hearing are true, the illegal foreclosures taking place represent the largest seizure of private property ever attempted by banks and government entities,” Grayson wrote. “This is lawlessness.”

See Grayson calls on Florida Chief Justice to halt “foreclosure mill” cases for more, including the full text of Congressman Grayson's letter to Florida Chief Justice Charles T. Canady.

GMAC Calls Off Foreclosure Actions, Suspends Pending REO Sales In 23 States, Letting Buyers Back Out Of Deals; Cites Need To Take "Corrective Action"

Bloomberg News reports:

• Ally Financial Inc.’s GMAC Mortgage unit told brokers and agents to halt foreclosures on homeowners in 23 states including Florida, Connecticut and New York.(1)(2)

• GMAC Mortgage may “need to take corrective action in connection with some foreclosures” in the affected states, according to a two-page memo dated Sept. 17 and obtained by Bloomberg News.

• Ally Financial spokesman James Olecki confirmed the contents of the memo. Brokers were told to stop evictions, cash-for-key transactions and lockouts, regardless of occupant type, with immediate effect, according to the document, addressed to GMAC preferred agents.

• The company will also suspend sales of properties on which it has already foreclosed. The letter tells brokers to notify buyers that the company will extend the closing date on all sales by 30 days. Buyers will be able to cancel their agreement to purchase and get their deposit back, according to the letter.

***

• Lawyers defending mortgage borrowers have accused GMAC and other lenders of foreclosing on homeowners without verifying that they own the loans. In foreclosure cases, companies commonly file affidavits to start court proceedings. “All the banks are the same, GMAC is the only one who’s gotten caught,” said Patricia Parker, an attorney at Jacksonville, Florida-based law firm, Parker & DuFresne. “This could be huge.”

For the stories, see

• Ally's GMAC Mortgage Halts Home Evictions in 23 States,
• Ally Says GMAC Mortgage Mishandled Affidavits on Foreclosures.

For story update, see: GMAC Denies Halting Foreclosures in 23 States:

• There has been a number of reports from other media outlets that the suspensions may relate to how GMAC documented ownership of the mortgage note in foreclosure claims in some states. The Associated Press reports that Jeffrey Stephan, a GMAC employee, testified in December that he routinely signed 10,000 such affidavits or claims a month without verifying who actually owned the mortgage.

• An examination of the states listed in the Bloomberg report by the Naked Capitalism blog found that 22 of the 23 are judicial foreclosure states, which require such affidavits in order to bypass lengthy judicial hearings. In addition, the Bloomberg list covers all but one of the nation’s judicial foreclosure states. Regardless of whatever procedure GMAC is alluding to in its statement, the question of proving ownership of a mortgage in foreclosure cases has been a growing issue.

***

• The Florida attorney general is presently investigating three law firms for providing fraudulent affidavits of mortgage ownership, two of which have represented GMAC in foreclosure proceedings. U.S. Rep. Alan Grayson (D-Fla. 8th), cited the cases in a letter [] asking the Florida Supreme Court Chief Justice Charles Canady to suspend all mortgages until the investigation is completed.

(1) The affected states are: Connecticut, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont, Wisconsin.

(2) According to a recent New York Times story (see GMAC Halts Foreclosures in 23 States for Review):

• Since the real estate collapse began, lawyers for homeowners have sparred with lenders in those states. The lawyers say that in many cases, the lenders are not in possession of the original promissory note, which is necessary for a foreclosure. GMAC, which has been the recipient of billions of dollars of government aid, declined to provide any details or answer questions, but its actions suggest that it is concerned about potential liability in evicting families and selling houses to which it does not have clear title.

• The lender said it was also reviewing completed foreclosures where the same unnamed procedure might have been used. Matthew Weidner, a real estate lawyer in St. Petersburg, Fla., said he interpreted the lender’s actions as saying, “We have real liability here.” Mr. Weidner said he recently received notices from the opposing counsel in two GMAC foreclosure cases that it was withdrawing an affidavit. In both cases, the document was signed by a GMAC executive who said in a deposition last year that he had routinely signed thousands of affidavits without verifying the mortgage holder. “The Florida rules of civil procedure are explicit,” Mr. Weidner said. “If you enter an affidavit, it must be based on personal knowledge.” The law firm seeking to withdraw the affidavits is Florida Default Law Group, which is based in Tampa.

Technology Advances Continue In Effort To Help Lenders Identify Potential Short Sale Scams, Tracking Properties Even After Sale Is Completed

Housing Wire reports:

• DataVerify announced today changes made to its fraud management platform, Data Risk Intelligent Verification Engine (DRIVE), that help mortgage lenders identify potential short sale and property fraud losses. The program has updated tools for predicting risks such as employment disclosure, local conditions for flipping and individual history in the housing industry.

***

• [Property data provider] CoreLogic reported fraud occurs once in every 53 short sale transactions and has, since reporting this data, launched its own technology platform to monitor the estimated 400,000 short sales taking place in 2010. The program keeps track of properties even after the sale is completed.

For more, see DataVerify enhances short sale fraud detection based on customer track record.

In related stories, see:

• CoreLogic Launches Short Sale Fraud Watchdog Technology,
• Short Sales Cost Lenders $310m More Than Necessary, CoreLogic Study Finds,
• Short Sale Fraud Fears Grow as HAFA Gets Set to Pop (“Many homeowners are attempting to purchase their own properties at the market value. They will request a family member purchase their property with a different last name,” Housing Assist America's Ari Afshar said.)

Ohio AG's Servicer Lawsuit Gets Go-Ahead As Court Denies Dismissal Motion; Conduct In Giving Loan Mods Subject To State Consumer Sales Practices Act

From the Office of the Ohio Attorney General:

• Ohio Attorney General Richard Cordray’s lawsuit against Barclays Capital Real Estate dba HomEq Servicing, headquartered in New York City, just took a legal step forward with a recent decision by a state court. [Last] week, Montgomery County Common Pleas Judge Timothy N. O’Connell overruled the defendant’s motion to dismiss, clearing the way for Cordray’s case to move forward.

• “This ruling takes us one step closer in our overall strategy to hold loan servicers accountable for unfair loan modifications in foreclosure cases,” said Cordray. “For too long, servicers have stood idly by, talking the talk but failing to provide any real solutions to the foreclosure crisis. Ohioans are losing their homes and servicers have aggravated the situation with noncompliance and out-right incompetence.”

• Cordray sued HomeEq last December for multiple violations of Ohio’s Consumer Sales Practices Act (CSPA), including unfair and deceptive business practices. The lawsuit marked the third filed by Cordray against a loan servicer operating in Ohio. Cordray was the first state attorney general to file a lawsuit against a loan servicer for CSPA violations in the wake of the foreclosure crisis.

• [Last] week’s ruling is the first state court decision to hold that mortgage servicers are accountable under the CSPA, serving to create a precedent in this first-of-its-kind legal strategy.

For the Ohio AG press release, see Court Affirms Cordray's Case Against Loan Servicer.

To view the court decision and lawsuit, see State of Ohio v. Barclay's Capital Real Estate Inc. dba HomEq Servicing.

Company Execs Quick To Shift Blame, Invoke "Flawed Business Model" Defense To Explain Collapse Of Alleged Loan Modification Ripoff Racket

In St. Louis, Missouri, a recent column in the St. Louis Post Dispatch describes the aftermath left by the now-defunct Home Safe Financial Assistance. The company's principals attempt to give reasons for their firm's problems in the following excerpt:

• Derek Doherty, Home Safe's president and owner, and Elijah Norton, the company's former chief executive, said their company really did help customers save money and stay in their homes.

• The men boasted that they successfully modified the mortgages of 50, maybe 70 customers. The problem, however, is the company had between 300 and 400 paying clients. At least 200 of them paid for Home Safe for work it didn't perform.

• Norton, who now lives in Kansas City, blames the company's collapse on a flawed business model. He said too much of what consumers paid ended up with so-called affiliate marketers hired by Home Safe to drum up business.

• One of the biggest, St. Peters-based Capital Debt Management, is owned by John Jacob Ehlinger. He previously owned CarSafe, a St. Charles company that sold extended auto-service contracts.

• Doherty, the Home Safe owner, said Capital Debt Management lied to customers about how mortgage-modification process worked, improperly promised specific reductions and instructed consumers to stop making house payments. "When we heard this was going on, we issued them a formal warning," Doherty said in an e-mail. "They seemed to clean up but their production dropped drastically."

• Ehlinger said that his company did nothing wrong, and that Doherty is passing the buck. "If he had such a problem in the ways the contracts were sold, he should have cancelled them," Ehlinger said. "He shouldn't have taken their money."

For the story, see Customers of mortgage-modification firm often got nothing for their money.

Wave Of Lawsuits Targeting Foreclosing Lenders, Contractors For Illegal "Trash-Outs" Seen On The Horizon?

The Palm Beach Post reports:

• The home repo business is booming as lenders break records this year to take back properties from delinquent borrowers. But some homeowners and attorneys complain the banks, and the property preservation companies hired to change door locks and clean homes, are overzealous in their work.

• In a handful of recent lawsuits statewide, homeowners say their locks were changed before a foreclosure had even been filed, that personal property and financial papers were rifled through or taken, and that charges are being levied for lawn maintenance and trash removal when HOAs already take care of those services.

• Often, homeowners say they can't even figure out who has been in their home as banks contract with nationwide property preservation groups that subcontract to local companies, which are not state regulated or required to receive special licensing.

• In one suit, a man with a criminal record of drug and burglary charges who is working for a property preservation company is alleged to have taken a laptop computer, several bottles of wine and a cordless drill from a Punta Gorda home while there to change the locks. He also helped himself to a cold beer from the refrigerator, leaving it, along with his fingerprints, on a counter top, the suit says.

• "They are emboldened because they are getting away with it," said St. Petersburg attorney Matt Weidner, who is representing the Punta Gorda homeowner.(1)(2)

For more, see Critics: Home repo agents too 'gung-ho,' change locks before foreclosures are filed.

(1) Reportedly, the lawsuit names Sarasota-based First Property Preservation Inc., which is doing business as Good Choice Preservation, and claims that not only were things stolen, but that the employee with the criminal record returned a second time and threatened the renters saying he was going to take all of their belongings. The home was in foreclosure, but occupied by renters, the story states.

(2) For earlier posts on a couple of high profile illegal trash-out cases, see:

• Countrywide Financial: Nevada High Court OKs $1M+ Damage Award To Homeowner Due To Mortgage Company Misidentification Of Home In Foreclosure (for the court ruling, see Countrywide Home Loans v. Thitchener, 192 P.3d 243; 2008 Nev. LEXIS 79; 124 Nev. Adv. Rep. 64 (September 11, 2008).),

• Wells Fargo: Long Island Judge Hammers Wells w/ $155K Tab For Oppressive, Heavy Handed, Egregious Conduct For Pre-Sale Lockout Of Homeowner In Foreclosure (for the court ruling, see Wells Fargo v. Tyson, 2010 NY Slip Op 20079 (Sup. Ct., Suffolk County, March 5, 2010)).

BofA Bagged Again On Wrongful Foreclosure Attempt; Says It's Sorry For Action Against Couple With Paid-Off Loan After Local Media Steps In

In Willcox, Arizona, KVOA-TV Channel 4 reports:

• A southern Arizona family is in fear of losing their house to what they call an unjust foreclosure, and they're now fighting back against one of the biggest banks in the country. The Willcox-area family says that house was paid for more than a year ago. The loan company went under, and Bank of America stepped in and said it wasn't paid.

***

• So the Newman's hired an attorney that has dealt with this kind of thing before, and then they contacted News 4. After working with the Newman's for two days, reporter Greg Dingrando got through to Bank of America who agreed to talk to them. A few hours later, they received the following statement:
  
  We sincerely apologize to the Newman's for this mistake. We have cancelled the foreclosure sale and hope to resolve this with the Newman's. Due to the pending litigation, we cannot comment further on this case.

• This came as a huge relief to the Newman's, but their attorney says it's not over. "You can't just walk away and let these large big box banks get away with that," said Carlin Phillips, the Newman's attorney. "We want to bring them to task before a jury in Arizona, and see what they have to say about this kind of conduct." The Newman's attorney says this type of thing happens all too often, and it's not just Bank of America. He says it happens everywhere.(1)

For the story, see Bank admits mistake on Willcox home foreclosure.

For the lawsuit, see Newman v. Bank of America, N.A. (go here for the attached Exhibits).

See also, Arizona Couple Sues Bank of America Alleging Unlawful Foreclosure.

Go here for links to other reported Bank of America foreclosure screw-ups.

(1) For earlier posts on a couple of high profile bank foreclosure screw-up cases, see

• Countrywide Financial: Nevada High Court OKs $1M+ Damage Award To Homeowner Due To Mortgage Company Misidentification Of Home In Foreclosure (for the court ruling, see Countrywide Home Loans v. Thitchener, 192 P.3d 243; 2008 Nev. LEXIS 79; 124 Nev. Adv. Rep. 64 (September 11, 2008).),

• Wells Fargo: Long Island Judge Hammers Wells w/ $155K Tab For Oppressive, Heavy Handed, Egregious Conduct For Pre-Sale Lockout Of Homeowner In Foreclosure (for the court ruling, see Wells Fargo v. Tyson, 2010 NY Slip Op 20079 (Sup. Ct., Suffolk County, March 5, 2010)).

Arizona AG Scores $1.7M In USDOJ Cash To Escalate Efforts In Prosecuting Mortgage-Related Scams

From the Office of the Arizona Attorney General:

• Attorney General Terry Goddard [] announced he has been awarded a $1.7 million grant from the U.S. Office of Justice Programs to fight mortgage fraud in Arizona. The grant will be utilized to create a new six-person unit devoted exclusively to investigating and prosecuting mortgage-related crimes. This new unit will operate as part of the Criminal Division of the Attorney General’s Office and will be operational within the next 90 days.

• The Office of Justice Programs is a part of the U.S. Department of Justice. Goddard said the unit will enable his Office to go after more mortgage “rescue” businesses that exploit consumers struggling to keep their homes. Over the past three years, the AG’s Office has undertaken several dozen criminal and civil investigations of mortgage fraud, leading to 13 indictments and 19 lawsuits and settlements.(1)

For the Arizona AG press release, see Terry Goddard Wins $1.7 Million to Fight Mortgage Scams.

(1) Goddard also said that in the past two weeks he has stepped up efforts to prevent mortgage scams by sending more than 600 letters to loan modification companies and licensed mortgage brokers, advising them about the new state laws that went into effect this summer. The letters affirm his commitment to vigorously enforce the laws and take action over any violations of the Arizona Consumer Fraud Act.

Sale Leaseback Peddler Aquitted Of Charges Accusing Him Of Tricking Couple Facing Foreclosure Into Signing Over Deed To Home

In Farmington, Utah, the Standard Examiner reports:

• A judge rendered a not guilty verdict on two felony counts against a Morgan man accused of swindling a former West Point couple out of their home. Judge David M. Connors issued the not guilty verdicts Thursday in 2nd District Court following almost two days of testimony in a bench trial for Jeffery Q. Wangsgard, 57.

• The state Attorney General’s Office had charged Wangsgard in January of 2008 with two second-degree felonies: one count of communication fraud and one count of exploitation of a vulnerable adult.

• The charges accused Wangsgard of tricking Emery and June Mitton, when they were facing foreclosure in 2006, into signing documents that transferred their property deed over to the company where Wangsgard worked.

• Assistant Attorney General Charlene Barlow said she plans to go forward with remaining counts against Wangsgard. Those counts involve two other families who said they were tricked out of their homes by Wangsgard. Connors set Feb. 2 and Feb. 3 for one case and Feb. 9 and 10 for another case. Wangsgard is charged with second-degree felony communication fraud in both cases.

For more, see Not guilty verdict in swindling case.

Lender Sells Same Foreclosed House To Two Separate Buyers; Blames Escrow Agent For Closing One Deal In Error

In San Clemente, California, KABC-TV Channel 7 reports:

• The real estate market may be suffering, but that didn't stop one Orange County home from selling - twice. Doug Garhartt and his partner Brandon Lively bought the foreclosed townhouse in San Clemente last March. They moved in and started renovations but a week later, Garhartt said, the nightmare started.

• "I came home from work and found an eviction notice on my door that said you have three days to move out of your home," he said. Through a series of mistakes, the townhouse they had purchased at auction for $365,000 had also been sold to an investment group, which had paid more than $345,000 in cash.

• "We're kind of in no man's land," said Garhartt. "We bought a property but we don't have the property or the money, so we don't know what's going on at this point."

• Both of the buyers have the deed to the property. One West Bank handled both deals and Point Break Escrow closed them. [...] Garhartt alleged the bank was at fault. "They just simply forgot to cancel the foreclosure. It was a mistake. The right hand didn't know what the left hand was doing."

• According to court documents the bank said the escrow company closed the sale by mistake. The bank said it did not receive a required form before closing. The escrow company denied this and said it had property delivered all documents to the bank.

For the story, see House accidentally sold to two buyers in OC.

DC AG's Lawsuit Against Foreclosure Rescue Operator Alleges More Of The Same Use Of Sale Leasebacks To Rip Off Property Owners' Home Equity

A recent lawsuit filed by the Office of the District of Columbia Attorney General against local foreclosure rescue operator Vincent Abell alleges more of the same conduct that has earned him notoriety for allegedly ripping off homeowners in foreclosure through use of sale leaseback arrangements purportedly designed to help them keep their homes.(1)(2)

In addition, in a separate charge, Abell is accused of taking a rental apartment building that he purchased, converting it into condominiums, and peddling the units to buyers that contained wiring, gas lines, and electrical outlets that were improperly installed, not to mention water damage to drywall and roof leaks.

For the DC AG's lawsuit, see District of Columbia v. Abell.

Thanks to DC attorney Mike McKeown of Neighborhood Legal Services Program for the assist in obtaining the lawsuit.

For earlier posts and links to other stories on Abell, see:

• F'closure Rescue Operator At It Again As DC AG Slams Sale Leaseback Peddler w/ Suit Seeking To Void Title Transfers Violating Consumer Protection Law,
• DC High Court Affirms Punitive Damages Award Slamming Sale Leaseback Peddlers For $3.3M In Equity Stripping Foreclosure Rescue Ripoff.

(1) For the DC AG's press release announcing the commencement of this action, see Attorney General’s Office Files Action Against Foreclosure Rescue Scam.

(2) DC authorities once brought a successful criminal prosecution years ago against a sale leaseback peddler who operated in much the same way as Abell does. See Browner v. Dist. of Columbia, 549 A.2d 1107 (D.C. 1988), in which the DC Court of Appeals affirmed a criminal conviction of a foreclosure rescue operator where the trial judge found "that the depiction of each of these transactions as a sale and lease back was a transparent sham which masked an unlawful loan."

Inasmuch as Abell has reportedly "done time in federal prison for property schemes" according to a 2004 CBS News' story (see Loan Scam Targets Seniors' Homes (Washington Con Artists Preyed On Elderly People In Financial Trouble) (go here to watch related CBS News' video)), continuing to bring civil suits against him (that lack a threat of jail time) will probably not do much to stop him.

If local law enforcement is unwilling to go after him criminally for making these usurious loans to homeowners that masquerade as sale leasebacks (the [relatively toothless] DC usury statute [§28-3301 et seq], provides for fines of not more than $1,000 or imprisonment for not more than 1 year, or both under §28-3313 for willful violations), it may take a sharp, aggressive FBI agent to "prove up" federal criminal charges against him (ie. mail and/or wire fraud, conspiracy, RICO) in an attempt to permanently put Abell and his associates out of business.

New Jersey Appeals Court Voids Mortgage Made In Violation Of Affordable Housing Deed Restriction, Leaving Lender With Unsecured Loan

The following facts have been adapted from a recent ruling of the Superior Court of New Jersey, Appellate Division (New Jersey's intermediate appeals court):

• On January 14, 2004, one, Hough, purchased a condominium unit for $68,142.86. To fund part of the purchase price, Hough borrowed $61,329 from Wells Fargo Home Mortgage, Inc., and secured the loan by executing a mortgage in favor of Wells Fargo.

• Because the condominium formed a part of the Township's affordable housing obligation under New Jersey state law, the deed contained a restriction limiting the use, sale and resale of this property, which, among other things, limited the amount of a loan that could be secured by the property.

• On March 25, 2005, Hough refinanced the condominium unit by borrowing $108,000 from Mortgage Lenders Network, USA, Inc.

• At the time of the mortgage transaction, the maximum allowable resale price of the condominium unit, pursuant to N.J.A.C. 5:80-26.6, was approximately $68,735.41. The loan, therefore, was limited to 95% of the units' maximum allowable resale price.

• Hough used the mortgage proceeds to satisfy the Wells Fargo purchase money mortgage then in the amount of $62,795.10, and for other personal unsecured debts, and real property tax liens. Hough netted $20,080.45 from the mortgage refinance.

• On February 1, 2007, Hough defaulted on the mortgage. The lender subsequently sued for foreclosure, afterwhich Hough challenged the legality of the mortgage, which the lower court overruled, and which gave rise to an appeal.

• In reversing the lower court, the New Jersey appeals court noted that the deed restriction limiting the use, sale and resale of the property placed lenders on constructive notice that the condominium unit was part of the Township's Mount Laurel affordable housing obligation subject to the applicable state regulations.

• Because the amount of the refinanced loan exceeded the maximum amount allowable under the Township's affordable housing obligation, the court found the mortgage to be void, but left the amount of debt itself, now unsecured, to remain in tact, and noted that lender may file a separate action seeking to collect upon the unsecured underlying debt.

For the ruling, see U.S. Bank, N.A. v. Hough, Docket No. A-5623-08T3 (N.J. Super. App Div. September 14, 2010) (when link expires, TRY HERE).

Bankruptcy Trustees' Foot-Dragging In Closing Out Cases Leads To Screwing Over For Debtor-Homeowners Involving Homestead Exemption Claims

A Federal Appeals Court in San Francisco, California recently issued a ruling in a bankruptcy case that resulted in a serious screwing over for a pair of homeowners occurring after the passage of a significant amont of time subsequent to receiving discharges in their cases. (Note that the issue in this case was of significant enough importance that it caught the attention of the National Association of Consumer Bankruptcy Attorneys, which, as a "friend of the court," filed an amicus brief with the court in support of the position of the homeowners involved).

The issue involved was summarized by the appeals court as follows:

• These consolidated appeals present the question of how to construe the homestead exemption in bankruptcy. In both cases, the debtors filed for Chapter 7 bankruptcy at a time when the value of the equity in their homes was less than the amount they were eligible to claim under the state or federal homestead exemption.

• There was no value in the homestead properties that could be claimed by the bankruptcy estate, and the debtors therefore anticipated that they would be able to retain ownership of their homes, subject to the terms of their mortgages, after the bankruptcy closed. The value of the homes subsequently increased so that the debtors had equity in excess of the homestead exemptions.

• Our question is whether the bankruptcy Trustees may force a sale of the homestead properties in order to recover the excess equity, or whether instead the debtors should be allowed to retain any postpetition increase in the fair market value of their homes.

The facts involving the first homeowner, an Arizona resident, follow:

• On August 8, 2003, one, Gebhart, filed for Chapter 7 bankruptcy protection. As part of his bankruptcy petition, he claimed an exemption in the amount of $89,703 for the house he owned in Phoenix.

• According to the petition, the market value of the property at the time of filing was $210,000, and it was encumbered by mortgages in the amount of $120,297. The $89,703 figure represents the difference between the value of the homestead and the mortgages with which it was encumbered.

• Gebhart claimed the exemption pursuant to Ariz. Rev. Stat. § 33-1101(A), which at the time of the bankruptcy filing provided that an Arizona resident may hold as a homestead exempt from attachment, execution and forced sale, not exceeding $100,000 in value.

• On December 12, 2003 (four months after filing the bankruptcy petition), Gebhart received his discharge under 11 U.S.C. § 727. However, the case itself was left open.

• Gephardt continued to reside in his house and even refinanced his mortgage with a lender who apparently believed Gebhart owned the property free and clear of any claims by the bankruptcy estate, when, in fact, the bankruptcy case was not closed.

• On November 10, 2006 (almost three years after receiving his discharge), the Trustee asked the bankruptcy court to approve the appointment of a real estate broker to sell the home for the benefit of the estate. (The Trustee believed that the value of the house had increased substantially since the time of the bankruptcy filing, and that if it were sold, the estate would recover a great deal of money, even after paying off the mortgage and the expenses of the sale and paying Gebhart the value he had claimed for his homestead exemption).

The facts involving the second homeowner, a Washington State couple, follow:

• On June 30, 2004, Steven and Julie Chappell filed for Chapter 7 bankruptcy.

• They owned a home in Camano Island, WA, in which their equity at the time of bankruptcy—$21,511—was less than the $36,900 they were allowed to claim under the federal homestead exemption in bankruptcy.

• On October 21, 2004 (about 4 months after the filing of their bankruptcy petition), the Chappells received their discharge. However, the case itself was left open.

• On July 7, 2006, (over 20 months after receiving their discharge), the holder of the Chappells' mortgage moved for relief from the stay in order to foreclose on the homestead because the Chappells had fallen into default.

• The Trustee responded that he believed the fair market value of the homestead had increased substantially since the bankruptcy filing, and asked permission to attempt to sell the property and keep the excess recovered for the benefit of the estate.

The Federal appeals court concluded that, because the cases remained open and were never closed by the bankruptcy Trustee, it was appropriate for the Trustee to seek a sale of each debtor's homestead (despite the significant passage of time from when they received their discharges) and pocket the post-filing appreciation for the benefit of the unsecured creditors.(1)

See In re Gebhart, Nos. 07-16769, 07-35704 (9th Cir. September 14, 2010) for the entire ruling, and the court's analysis of the applicable law.

(1) The following excerpt from the opinion sets forth the concerns that any homeowner filing bankruptcy and claiming the applicable homestead exemption shorld have when a bankrupcy Trustee drags his/her feet when closing out a case (bold text is my emphasis, not in the original text):

• The debtors argue that the result we reach today will lead to uncertainty about the status of exempt property and abuses by trustees. The facts of the Gebhart bankruptcy suggest that some of these concerns are legitimate.

• Gebhart remained in his home for five years after filing for bankruptcy, paying his mortgage and believing that his bankruptcy was finished when he received his discharge.

• Gebhart may have been mistaken in this belief, but his misapprehension was shared by his mortgage lender, which refinanced his home, apparently unaware of any claims on the property by the Trustee. A Chapter 7 debtor will not be certain about the status of a homestead property until the case is closed (something that may not happen for several years after bankruptcy filing) or the trustee abandons the property.

• Gebhart argues that, even if the homestead is the property of the bankruptcy estate, the Trustee in his case intentionally left the case open longer than necessary and should be estopped from proceeding with the sale of the property.

• We do not decide whether estoppel might be available as a remedy in a bankruptcy proceeding, see Cannon v. Hawaii Corp. (In re Hawaii Corp.), 796 F.2d 1139, 1144 n.3 (9th Cir. 1986), because, even if it were, Gebhart has not met the requirement for estoppel to apply.

Renting From Financially Strapped Landlords A Concern In Commercial Leasing

Large companies renting commercial office space from financially strapped and underwater property owners are not immune to the problems that may arise when the landlord subsequently goes into foreclosure. Attorney Jeffrey Margolis writes in The Commercial Oberver on how commercial tenants attempt to protect their rights in foreclosure when entering into a lease with a landlord.

For the story, see Your Landlord Financially Challenged? How to Protect Tenants, Subtenants and Brokers.

Disabled Vet Gets Boot With No Notice After Landlord Loses Rental Home To Foreclosure

In Stuart, Florida, WPTV-TV Channel 5 reports:

• A local veteran is desperate for help after being put out of his home. He says the home he was renting went into foreclosure and he was told it was okay for him to stay there until everything was worked out. But on Thursday he was handed an eviction notice and watched as movers moved all his belongings into the street.

• It's tears of frustration and desperation from 62-year-old Vietnam Veteran Ramsey Harris. "I cry like a baby and I'm a about to burst into tears right now," said Harris. He hides his face as he is overwhelmed with emotion not knowing where he will go or do next. "It's kind of tough... it's just not right," Harris said.

• Harris says he moved to Stuart from Maryland after he was told he could receive better medical care at the VA hospitals in South Florida. "They're going to fuse my back and hope that solves some of the pain and problems that I have," said Harris.

***

• Neighbors are still in disbelief. "I was surprised at sort of the brutality of it the throwing a person's possessions on the street and leaving him to his own devices," said one neighbor. [...] And many of his belongings are still out on the street. He says some of the items have been taken by people thinking it's just junk.

For the story, see Vietnam Veteran homeless after home he's renting goes into foreclosure.

Struggle Continues For Homeowners With Chinese Drywall Problems As Few Companies Step Forward To Accept Responsibility

In Plant City, Florida, The New York Times reports:

• Linda and Randall Hunter own their dream house in Plant City, Fla., with an oversize master bedroom, granite countertops in the kitchen and a screened-in pool. The problem is they cannot bear to live there. For the last several months, the Hunters have been camped out in the side yard in a trailer — uncomfortable mattresses and all — because faulty drywall left the house smelling awful. “Living in the trailer is no easy thing,” Ms. Hunter said. “But I count my blessings that I have someplace to go.”

***

• Complaints about the drywall, or wallboard, which was mostly made in China, first surfaced a few years ago, and hundreds of lawsuits have been filed in state and federal court to recover money to replace it. The federal Consumer Product Safety Commission has received 3,500 complaints about the drywall and says it believes thousands more have not reported the problem.

• But so far the relief has been negligible. Most insurance companies have yet to pay a dime. Only a handful of home builders have stepped forward to replace the tainted drywall. Help offered by the government — like encouraging lenders to suspend mortgage payments and reducing property taxes on damaged homes — has not addressed the core problem of replacing the drywall. And Chinese manufacturers have argued that United States courts do not have jurisdiction over them.

• “They are hiding behind the ocean,” said Arnold Levin, lead lawyer in a lawsuit against the manufacturers of Chinese drywall in federal court in New Orleans.

***

• The Hunters decided to buy the trailer — it cost $18,000 — after their insurance company told them it would not cover their home for vandalism or theft if they moved. They are now gutting their house with their own money and hope to eventually recoup their expenses in court. “The trailer is a life raft,” said Ms. Hunter, 57.

For more, see Limited Relief for Owners of Homes With Drywall Flaws.

Bill To Protect Innocent Tenants' Credit History In Evictions Resulting From Landlords' Foreclosure Needs Schwarzenegger Sign-Off

In San Francisco, California, Beyond Chron reports:

• Tenants evicted through no fault of their own frequently have their credit history damaged for years. In California, where hundreds of thousands of tenants are being evicted by banks because their landlords went into foreclosure, these credit impacts are particularly harsh. Fortunately, a bill by state senator Ellen Corbett (D – San Leandro) would limit this collateral damage to innocent renters.

***

• Tenants Together has set up an online petition to urge Governor Schwarzenegger to sign SB 1149. Please sign the petition today. Tenants should not be blacklisted because of evictions arising from their landlords' failure to pay the mortgage.

For more, see Legislature Passes Bill to Protect Innocent Tenants From Having their Credit Ruined by Banks (Will Governor Sign or Veto?).

Tenants In Government-Assisted, Low Income Housing Complex In Foreclosure Found Living In Squalor As Management Faces Allegations Of $600K+ Ripoff

In Edmonton, Alberta, the Edmonton Journal reports:

• Health inspectors found dead mice, bedbugs, mouldly walls, graffiti, blood-stained carpets and filthy hallways in low-income housing units run by the Amisk Housing Association, health records show. Inspection reports released by Alberta Health Services [...] show inspectors found the deficiencies around the same time that three directors allegedly took more than $600,000 from Amisk's publicly funded bank accounts.

***

• Court records show that government funding agencies have alleged that Lawrence Thomas Willier, Mel H. Buffalo and Geordy Saulteaux were part of a board that managed the Amisk Housing Association and the Umisk Affordable Housing Society so poorly that health inspectors expressed concern about the state of the buildings, and banks started foreclosure proceedings. [...] Cheques and other court records show most of the money was withdrawn for "travel expenses." There is no evidence the expenses were substantiated or that any of the money was repaid.

For more, see Tenants lived in squalor, health records show (Three managers allegedly misused public funds earmarked for affordable housing).

Hundreds Fear Eviction From Now-Foreclosed Amarillo Trailer Park

In Amarillo, Texas, KFDA-TV Channel 10 reports:

• Change of ownership could be coming again to an area trailer park already plagued with confusion. It was a month ago [] that NewsChannel 10 was the first to tell you about massive foreclosure notices going out at an area trailer park.

• Those came after the land was foreclosed on and people living there weren't sure who to pay their bills to anymore. Well now the web site for CIII Asset Management Sales says Amarillo Estates is "available for sale." People living in the park say they're scared of being kicked off if a developer buys the land.

Source: Hundreds Facing Eviction.

Niece Gets 14-84 Months In $92K Home Equity Ripoff Of Now-Deceased, Dementia-Stricken Aunt; Scammer's Son Triggers Probe Leading To Mom's Imprisonment

In West Chester, Pennsylvania, Local Daily News reports:

• Mary Ellen Ashton has had a problem with housing. Over the years, she has defaulted on two mortgages – one in Chester County and another in Montgomery County – and ultimately stole more thousands of dollars from an aging and senile aunt to pay rent at a Chester Springs home.

• Her housing concerns, however, are settled now -- at least for 14 to 84 months. [...] Common Pleas Court Judge William Mahon sentenced Ashton, 57, formerly of Phoenixville, to that amount of time behind state prison bars for the scheme that defrauded her aunt, the late Margaret Voytowicz, of $92,000 and nearly cost the woman the home she had lived in for more than 50 years.

***

• According to court records and testimony at her trial in July, the case against Ashton began in 2006, when Ashton’s son, Michael Ashton, who lives in California, learned that his great aunt, Voytowicz, was facing eviction for failure to make any payments on the $92,000 mortgage she had taken out with Chase Manhattan Bank. Voytowicz had told him that Ashton convinced her to take out the mortgage, even though she did not need it or want it. Ashton needed it, Voytowicz said, “because her son was being injected with the AIDS virus.”

***

• Michael Ashton and attorneys hired by Voytowicz’s family were able to save her from eviction after settling the mortgage account with Chase Manhattan for $50,000 in 2008.

• At the same time, officials at the Chester County Department of Aging hired Exton psychologist Bruce Mapes to assess Voytowicz’s mental state at the time that the mortgage had been taken out. Mapes found that although Voytowicz lived alone and appeared able to fend for herself in some ways, she was suffering from early stage dementia. [...] Voytowicz died in November 2008 at the age of 84.

For more, see Woman gets jail for stealing from elderly aunt.

Another Home Sold Out From Under Owner, Despite Continued Payments To Bank On Loan Modification Agreement

In Cape Coral, Florida, WINK News reports:

• A woman's beloved home, sold out from under her by the bank. It's the third such case uncovered by the WINK NEWS Call for Action team. And not only did the woman lose her home, but the bank still collected payments four months after selling it!

For more, see Woman says Wells Fargo sold her dream home and didn't know it.

Foreclosure Of Predatory Loan, Subsequent Boot From Home Saves Family From Tragedy

In San Mateo County, California, The Daily Journal reports:

• The house at 1720 Earl Ave., less than a 200 feet from where a 167-foot-long and 26-foot-wide crater is now, sits empty with a red tag on it unable to be occupied. It was the home of the Nesbitt family up to July 20 when it was foreclosed upon by the bank.

• In what was a traumatic financial tragedy mirroring the housing collapse for many across the nation, now seems like a miracle after it, along with blocks of other homes in the Glenview neighborhood of San Bruno, were completely destroyed or substantially damaged in [last week's] devastating explosion and fire. “I was shocked, and then realized that but for the grace of God we were spared,” said Fred Nesbitt, who lived in the house for 15 years until the foreclosure. It is now owned by the bank.

***

• Up until this year, Nesbitt had lived in the house with his wife of 41 years, Vicki, his son and his wife and three daughters, his daughter, her husband and son. He imagined that if he had not fallen victim to a questionable mortgage and lost $400,000 in equity in his home, that they would have all been sitting down to dinner when the blast shook the neighborhood and forever changed the lives of so many.

For more, see Foreclosure saves family from tragedy.

See also, Southern California Public Radio: Gas pipeline blast probe looks for link with sewer line work (Fred Nesbitt wasn’t there because he’d lost the house to foreclosure three weeks earlier. He calls himself the luckiest man in San Bruno).