BofA Board, Some Officers Hid Mortgage Paperwork Screw-Ups, 'Dollar Rolling' Bookkeeping Gimmick From Stockholders: Lawsuit

In New York City, Bloomberg reports:

• Bank of America Corp. (BAC)’s board and some officers were sued by shareholders claiming they were hurt by false and misleading statements that hid defects in mortgage recording and foreclosure paperwork.
• Bank of America “did not properly record many of its mortgages when originated or acquired, which severely complicated the foreclosure process when it became necessary,” according to the complaint filed [] in New York state Supreme Court in Manhattan. The bank also concealed that it didn’t have adequate personnel to process the large numbers of foreclosed loans in its portfolio, the shareholders said. The bank’s stock traded at inflated prices, reaching a high of $19.48 on April 15, 2010, and fell almost 42 percent after the problems were disclosed, according to the complaint.
• The directors and officers also hid the bank’s involvement in “dollar rolling,” omitting billions of dollars in debt from its balance sheet, according to the complaint. Bank of America later admitted it wrongly classified the transactions as sales when they were secured borrowing, according to the complaint.

For more, see BofA Board Sued by Holders Over Mortgage Recording Paperwork.

Fired Foreclosure Mill Refuses To Turn Over $400M In Promissory Notes, Mortgages Until Bank Coughs Up $5M+ In Unpaid Legal Fees, Costs: Lawsuit

In Fort Lauderdale, Florida, The Palm Beach Post reports:

• Chase Home Finance has filed a federal lawsuit against its former legal counsel, Ben-Ezra & Katz, accusing the firm of refusing to hand over foreclosure case files that contain over $400 million worth of original notes and mortgages "without which Chase will be unable to proceed with any of the pending cases."
• In the 11-page lawsuit filed Friday in federal court in Fort Lauderdale, Chase asked for a temporary restraining order and permanent injunction ordering the firm to return the files and pay Chase an unspecified amount of damages.
• During its two-year contract with Chase, the law firm handled thousands of foreclosures throughout the state. According to the lawsuit, the contract requires the firm to immediately transfer case filees when the contract ends. Chase has made "repeated demands" for its files but "Ben-Ezra has not returned or released any of the Chase files."
• "Ben-Ezra refuses to release the Chase Files because it claims that it is owed over $5 million in fees and costs," according to the lawsuit. Although Chase disputes the amount it owes the firm, it has offered to post a $2.8 million bond as security.
• "Without the Chase files, especially the original executed promissory notes and mortgages, Chase cannot proceed with, transfer, or conclude any of the cases," according to the lawsuit. "Moreover, the original, executed promissory notes and mortgages securing Chase's interests cannot be reproduced."

For more, see Chase demands Ben-Ezra & Katz turn over foreclosure files.

Deficiency Judgments After Foreclosure Not A Hollow Threat, Say Foreclosure Defense Attorneys, Mortgage Industry Experts

The Palm Beach Post reports:

• He once lived just steps from the ocean in a home valued last decade at more than $500,000. But John Ericksen has fallen - far - and the bank that took away his Juno Beach home last year isn't done with him yet.


• In November, Riverside National Bank won a $151,461 claim against the down-and-out handyman who now resides in a one-bedroom trailer in Riviera Beach's scruffy Ocean Tide mobile home park.


• Called a "deficiency judgment," the claim is what Ericksen, 59, still owes on the loan for a home he's already lost. "They are actually trying to get money from me?" said a surprised Ericksen when contacted by The Palm Beach Post. "Good luck with that one. I'm pretty much out."


• In Florida, banks have five years to file for a deficiency judgment and up to 20 years to collect. But nearly six years into the state's foreclosure onslaught and with more than 100,000 foreclosures filed in Palm Beach County since the real estate bust, the number of deficiency claims sought by the banks is minuscule.


• A review of thousands of Palm Beach County court records by The Palm Beach Post found just 133 deficiency claims filed between April 2006 and November 2010 on foreclosed residential properties. They were made by 88 servicers or lenders, with 68 resulting in a judge granting the right to pursue the deficiency. Most of the lenders that have obtained deficiency judgments in Palm Beach County are small community banks.


• Foreclosure defense attorneys and mortgage industry experts say that despite the lack of claims, the deficiency judgment is not a hollow threat. Banks are just too overwhelmed right now processing the foreclosures to switch gears and pursue the money they've been shorted.

For more, see Foreclosures' hidden risk: Debt that haunts for two decades.

In a related story, see St. Petersburg Times: Deficiency judgments let creditors haunt borrowers for up to 20 years.

Void vs. Voidable Deeds & The Effect Of Forged Documents

A recent ruling by the Maryland Court of Appeals, the state's highest court, had the opportunity to address the following question:

• "Does the use of a deed that is neither a forged document, nor signed with a forged signature, but which derives its transactional vitality from forged corporate articles of amendment, render a conveyance of land void ab initio, or, is good title transferred to bona fide purchasers for value without notice?" [ie. is the conveyance of land rendered merely voidable?]

For a number of reasons, the court ruled that a forged signature on the articles of amendment does not operate to void the deed ab initio.

The court's ruling contains an analysis of the 'void/voidable' and 'forgery-false pretenses' distinctions and the role they play in the protection granted under the recording statutes. A person otherwise qualifying as a bona fide purchaser under the recording act receives no protection under a `void' deed. On the other hand, a person otherwise qualified as a bona fide purchaser for value does receive protection in purchasing from one whose title is merely 'voidable.'(1)

For the ruling, see Scotch Bonnett Realty Corporation v. Matthews, 417 Md. 570; 11 A.3d 801 (January 21, 2011).

See Julian v. Buonassissi, 414 Md. 641, 997 A.2d 104 (2010), for another recent ruling by the Maryland Court of Appeals, in which the court addressed the issue of whether a deed of trust that violated the Maryland Protection of Homeowners in Foreclosure Act (ie. the state's 'anti-sale leaseback, equity stripping' statute) was void ab initio or whether it was merely voidable (ie. where a bona fide purchaser for value gets the protection from the recording statutes).

Go here for more on Void & Voidable Deeds.

(1) 9 Thompson on Real Property § 82.12, at 650-51 (2d Thomas ed. 1999). DeedVoidVoidable

Multiple Issues Addressed By Recent Ruling On Defendants' Motions To Dismiss Filed In Sale Leaseback, Equity Stripping Litigation

A U.S. District Court in Maryland recently issued a ruling addressing motions to dismiss filed by multiple defendants relating to a slew of charges brought in a civil RICO case filed by the victim of a sale leaseback, equity stripping racket.

In his lawsuit, the victim alleged fraud and civil conspiracy to commit fraud, violations of the District of Columbia Home Equity Protection Act, District of Columbia Consumer Protection Procedures Act, violation of the Federal Racketeer Influenced and Corrupt Organizations Act, unjust enrichment; breach of contract, rescission, unconscionability, failure of consideration, declaratory judgment/quiet title.

The named defendants in the lawsuit were the sale leaseback peddlers, straw buyers, closing agent, and the banks who funded the scam.

For the reasons set forth in a rather exhaustive (and exhausting) ruling (which may make for interesting reading for attorneys that are involved in litigation efforts to undo these rackets), the court granted in part, and denied in part, the motions to dismiss filed by the various defendants.

For the ruling, see Day v. DB Capital Group, LLC, No. DKC 10-1658 (D. Md., March 11, 2011).

Court Dismisses Bank From NJ Sale Leaseback Equity Stripping Victim's Lawsuit Based On Pleading Defect; Gives Homeowner Chance To Amend Complaint

In a lawsuit filed by by a homeowner of a foreclosure rescue, equity stripping ripoff, a U.S. District Court in New Jersey dismissed, on procedural grounds and without prejudice, the claims made against Cornerstone Bank, the financial institution who (apparently unwitting) funded the alleged ripoff orchestrated by a sale leaseback peddler.

The underlying basis for the homeowner's claims was that sale-leaseback was a disguised financing transaction that should be recharacterized as an equitable mortgage.(1) According to the court:

• Although, applying the Johnson v. Novastar Mortgage, Inc. test, it appears Plaintiff has pled sufficient facts to assert the sale-leaseback arrangement was an equitable mortgage, the Complaint is void of any facts alleging the role and involvement of Defendant Cornerstone in the transaction.

  As noted by Defendant Cornerstone, Plaintiff's Complaint makes "vague references to a `loan'", but never avers the parties to the loan or who financed the loan. (Doc. 19, Def. Br. 9). Plaintiff's sole allegation concerning why the Court should impose an equitable mortgage is that Defendant Cornerstone "was on notice by its own HUD1 and other documents accompanying the transaction" that it funded a foreclosure rescue transaction. (Doc. 1, Compl. ¶ 63).
  

  This sole allegation for Defendant Cornerstone's liability fails to meet the Twombly/Iqbal threshold standard for pleading. It is a bald legal conclusion unsupported by averments in the Complaint. [...] The Court will grant Plaintiff leave to, within thirty days of entry of the Order accompanying this Opinion, file an Amended Complaint to cure the pleading defects relating to Defendant Cornerstone.

An important reminder to those looking to undo sale-leaseback, equity stripping scams in New Jersey, is that, no matter how unwitting the lender may have been when funding this ripoff, the the general rule in New Jersey is that possession of real estate by the occupant thereof which is actual, open and visible, inconsistent with the title of the apparent owner [ie. the sale-leaseback peddler] by the record is constructive notice to all the world of the rights of the party in possession, and that this rule applies, not only to would-be buyers, but also applies to a person proposing to take a mortgage on the property.(2)

When looking to attack the mortgagee's interest held by a lender who funds these deals (unwittingly or otherwise), it is important to assert that, in addition to any other evidence that the bank was on notice, it was placed on constructive notice of the ripoff by reason of the victimized homeowner's continued occupancy of the premises where such occupany is actual, open and visible, and allow the judge to decide whether or not this principle applies to the facts of the case.

For the court ruling, see Davidson v. Cornerstone Bank, No. 10-2825 (D.N.J. February 16, 2011).

(1) The court briefly described what is meant by an 'equitable mortgage' in the following excerpt (bold text is my emphasis):

• An equitable mortgage is a judicially created doctrine that arises when "a deed or contract, lacking the characteristics of a common law mortgage, is used for the purpose of pledging real property, or some interest therein, as security for a debt or obligation, and with the intention that it shall have effect as a mortgage, equity will give effect to the intention of the parties." Bank of New York v. Patel, No. F-3482-05, 2006 WL 337074, at * 2 (N.J. Super. Ct. Ch. Div. 2006) (quoting J.W. Pierson Co. v. Freeman, 113 N.J. Eq. 268, 271 (E & A 1933)).

  Among other circumstances, courts have imposed an equitable mortgage when the plaintiff, to avoid foreclosure, enters into a sale-leaseback agreement with a defendant. Johnson v. Novastar Mortg., Inc., 698 F. Supp.2d 463, 469-470 (D.N.J. 2010); see In re PCH Assocs., 949 F.2d 585, 600 (2nd Cir. 1991) (treating a sale-leaseback as an equitable mortgage). To determine whether a transaction constitutes a sale-leaseback arrangement, and consequently an equitable mortgage, Courts in this district apply a multi-factor test.[10] Johnson, 698 F. Supp.2d at 469-470. The determination of whether the parties' interactions created an equitable mortgage is not limited to the existence of an express contract. Id. at 470-71. An equitable mortgage may arise between parties that did not have any direct interactions. Id.

(2) See generally, Clawans v. Ordway Bldg. & Loan Ass'n, 112 N.J. Eq. 280; 164 A. 267 (E & A 1933) (bold text is my emphasis):

• In Wood v. Price, 79 N.J. Eq. 620, 81 A. 983, Mr. Justice Voorhees said (at p. 624): "All authorities are agreed that the general rule is that possession of real estate which is actual, open and visible occupation, inconsistent with the title of the apparent owner by the record and not equivocal, occasional or for a temporary or special purpose, is constructive notice to all the world of the rights of the party in possession."

  The testimony relating to the complainant's possession, accepted by the trial court as true, was, we think, sufficient to bring that possession within the application of the rule thus stated. It was held by this court in La Combe v. Headley, 91 N.J. Eq. 63, 108 A. 185, opinion by the chief-justice, that: "It is the duty of an intending purchaser of land which is in the possession of a person other than the intending grantor to inquire of the occupant and ascertain the rights under which he holds; and if he does not make such inquiry, he is chargeable with notice of such facts as the inquiry, if it had been in fact made, would have revealed."

  The efficacy of notice by actual possession applies to a person proposing to take a mortgage on the property. Phelan v. Brady, 119 N.Y. 587, 23 N.E. 1109; Chicago and A. R. Co. v. Kelly, 182 Ill. 267; 54 N.E. 979. The inquiry required to be made of the occupant must, of course, be made with due diligence; and it was not so made in the instant case. Indeed the visitation of the defendant's representatives at the premises seems to have been directed towards the physical condition of the property and not at all towards the character or significance of the occupancy.

For more on this point, see New Jersey Bona Fide Purchaser, Possession, Duty To Inquire.

See also, Faulty Service Of Process In Tax Foreclosure, Failure To Investigate Rights Of Persons In Possession Leaves Unwitting Buyer Empty Handed.

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

For two recent cases from other states in which the scam-funding lender of the sale leaseback deal was found to have constructive notice of the ripoff as a result of the homeowner's continued open possession of the subject home, see:

• Illinois: Davis v. Elite Mortg. Servs., 592 F. Supp. 2d 1052 (USDC N.D.Ill., East. Div. 2009) (see also Lender's Failure To Inquire Into Possession Disqualifies It For Bona Fide Purchaser Protection In Suit To Undo Foreclosure Rescue Sale Leaseback Scam),
• Pennsylvania: In re Fowler (go here for Google Scholar version with embedded links), 425 B.R. 157 (Bankr. E.D. Pa. 2010) (see also Pennsylvania B'kruptcy Court Voids Sale Leaseback Scam; Victimized Homeowners' Continued Possession Leads To Invalidation Of Subsequent Deed, Mortgage).

Fight Within The Fight In NYC Homeowners' Lawsuit Brought To Undo Damage Caused By Sale Leaseback, Equity Stripping Ripoff

A recent ruling by a New York City trial court on a motion to dismiss in ongoing litigation provides an illustration of the kind of 'sub-battles' that can potentially occur when defendants named in a lawsuit brought by a screwed-over homeowner in a sale leaseback equity stripping ripoff(1) start fighting against each other.

The ruling did not address any of the merits of the homeowners' case, but rather, addressed the viability of certain crossclaims asserted by the bank who funded the ripoff (on behalf of the sale leaseback peddler) against the homeowners' attorney, both of whom were named as defendants by the homeowners in their lawsuit.

Frankly, the ruling doesn't make for interesting reading unless, of course, you're really into this stuff.

For the ruling, see Richards v. Cesare, 2011 NY Slip Op 30207 (NYS Supreme Court, New York County, January 19, 2011).

(1) Go here for the homeowners' lawsuit, which seeks to recharacterize the sale leaseback agreement as an equitable mortgage, and asserts violations of the Federal Truth in Lending Act, Home Ownership Equity Protection Act, Real Estate Settlement Procedures Act, Federal Racketeer Influenced and Corrupt Organizations Act (RICO), New York Real Property Law $265-a (ie. the Home Equity Theft Protection Act), New York State General Business Law Sec. 349 (“the Deceptive Practices Act”), Breach of Contract, Breach of Fiduciary Duty and Professional Malpractice, common law claims of Fraud, Civil Conspiracy to Commit Fraud, Aiding and Abetting Fraud, Conversion, Negligence, and Quiet Title to the subject property by having declared as void the fraudulent deed transfer.

Go here for links to the filed answers to the complaint and some other documents filed in this case.

Representing the homeowner is City Bar Justice Center, a nonprofit 501(c)(3) affiliate of the New York City Bar Association, which seeks to promote the providing of pro bono legal services to low income clients.

Foreclosure Mill's Affidavit Alterations Lead Judge To Slam Brakes On 1700 Cases; Outfit Ordered To Vacate All Judgments & Completed Judicial Sales

In Chicago, Illinois, the Chicago Tribune:

• A Cook County Circuit Court judge has taken the unusual step of temporarily halting at least 1,700 mortgage foreclosures after a law firm told the court that the cases contained altered documents, the Tribune has learned.

• Fisher and Shapiro LLC, one of the top three law firms used by mortgage servicers to handle their local foreclosure actions, reported to the court that, in a breach of protocol, affidavits in the cases were changed. Among other things, fees were added after the documents were signed by servicers. As a result, Moshe Jacobius, presiding judge of the Circuit Court's Chancery Division, has stayed the cases.

***

• The admission to the court by Fisher and Shapiro does not involve rubber-stamping of documents but rather removing the signature page, altering the affidavit's content and reattaching the signature page, the court said. The changed contents included the addition of attorneys' fees, insurance costs, preservation costs, inspection costs and taxes on the property, costs that may have been incurred before or after the servicer signed the original affidavit, Jacobius said in his order dated March 2.

• The firm's admission signals a note of caution to purchasers of distressed homes, which represent about 50 percent of local home sales, because of potential lingering legal issues if the title transfer process was faulty. It's uncertain why the documents were altered or who ultimately bears responsibility. It's also unclear whether affected homeowners and servicers, as well as housing counselors, are aware of the court's decision: As of Friday, some were not.

***

• Fisher and Shapiro was ordered to vacate all judgments of foreclosures and any judicial sales that have occurred and refile those motions with the court.

***

• "It's similar to robo-signing in that it's a high-volume pattern and practice of cutting corners, expediting the process through making false representations," said Daniel Lindsey, an attorney at the Legal Assistance Foundation of Metropolitan Chicago,(1) which is not directly involved in the matter.

***

• Most of the foreclosure cases identified by Fisher and Shapiro were filed within the past three years, but a few date to 2001, and some appear all but closed. Most, but not all of the cases, are of residential properties. Actions to vacate judgments and resolve the affected cases will not begin until April 4, the court said.

• The Illinois attorney general's office said it was aware of the order. So was the Illinois Department of Financial and Professional Regulation, which confirmed it is investigating the matter because of concerns that mortgage servicers may be signing legal documents before they are completed to speed the foreclosure process.

For the story, see Altered documents halt some Cook County foreclosures (Judge suspends 1,700 actions after law firm admits affidavits were changed).

(1) Legal Assistance Foundation of Metropolitan Chicago is a major provider of free civil legal assistance to tens of thousands of low-income and elderly individuals in Chicago and suburban Cook County.

Title Insurance Agency Owner Gets 6+ Years After Escrow Cash Ripoff Leaves Existing Mortgages Unpaid, Unwitting Homebuyers Facing Foreclosure

In Baltimore, Maryland, WBAL-TV Channel 11 reports:

• A title company president convicted of stealing more than $4 million in mortgage money was sentenced to six and a half years in prison on Friday. Maple Leaf Title President Anthony Weis pleaded guilty to wire fraud in November 2010.

• On Friday, his family pleaded for a punishment that didn't include prison, but the judge said she had to consider the severity of the crime. Weis admitted his guilt in court, calling his decisions horrendous and despicable.

• For more than a year, 10 Maryland families who were on the brink of losing their homes to foreclosure all dealt with Weis' company. Weis pleaded guilty to taking nearly $4 million of their money that was intended for real estate closings and using it for himself. As the victims purchased new homes with new mortgage loans, Weis' company collected funds but failed to pay off the old mortgages.

***

• Weis' wife, Teresa, asked the judge for a sentence that didn't include prison. She has terminal cancer, and her husband's father has Alzheimer's disease. Teresa Weis said being in prison would be too easy for her husband. She said he should have to stay at home to care for her, his father and the rest of the family.

• Weis said in court that he tried to fix problems with his company. He said he was also trying to conceal an extramarital affair from his family and took out a $350,000 home equity loan on his parents' house by forging their signatures.

For the story, see Title Co. President Sentenced In Mortgage Scheme (Man Bilked Homeowners Out Of $4 Million).

For the U.S. Attorney press release, see Towson Title Agency Operator Sentenced to Over Six Years in Prison in $3.9 Million Mortgage Fraud Scheme (Failed to Make $3.9 Million in Payoffs to Mortgage Lenders Holding Liens on 13 Properties).

Loan Servicer's Botched Posting Of Mortgage Payments Leads To Stained Credit Report, Force Placed Insurance, F'closure Threats, Says Homeowner's Suit

In Galveston, Texas, The Southeast Texas Record reports:

• Claiming Pennymac Loan Services LLC is muddying up his credit history, Texas City resident Joseph C. Boussard seeks $100,000 in damages. Boussard's lawsuit asserts that Pennymac's threats to foreclose on his property are based on errors committed by Citimortgage, the previous company with which the plaintiff obtained a mortgage loan in 1997.

• The suit was filed March 16 in Galveston County District Court. According to the original petition, Citimortgage failed to post payments and credits to Broussard's account in a timely and accurate manner as well as obtained force-placed insurance. Citimortgage's actions made Boussard appear to be in arrears when he was not, the suit says.

• The plaintiff applied last year for a loan modification, which was declined. Pennymac then acquired the mortgage for servicing. Boussard insists he disputed the alleged arrearage without success and claims the defendant reported the delinquency in question to the credit bureaus without making not of the dispute.

• "Mr. Boussard has suffered significant mental distress due to threatened foreclosure, libelous errors and the credit denial," the suit says. Attorney Lu Ann Trevino of Houston is representing the plaintiff.

Source: Texas City man says faulty payment reporting ruined credit.

Another Baltimore Tax Lien Racket Horror Story; City Screw-Up Leaves Homeowner Behind 8-Ball As Unpaid $435 Tax Bill Skyrockets To $43K

In Baltimore, Maryland, Investigative Voice reports:

• Standing in the yard of her Northwest Baltimore home, Sarita Murray stares at a “No Trespassing” sign nailed to a tree overlooking a swimming pool she built in 2005 to keep her four children busy during hot summer days. Not meant to ward off loiterers or stave off burglars, the notice is instead aimed at keeping Murray and her children out of the pool she spent $25,000 to build.

• “A man came to our home last summer and nailed it to this tree and told my kids to get out of the pool,” said Murray. “It’s horrible.”

• In fact, a company called Per Suit LLC — which bought the rights to the pool and property that Murray used to own for $435 in unpaid taxes at auction in 2006 — has put locks on the gate and threatened to fill the pool with cement if she doesn’t fork over $43,000.

• The demand is perfectly legal, as Per Suit bought the rights to the parcel of land adjacent to Murray’s home after the city mistakenly forgot to consolidate the two lots that comprise her Upper Park Heights home when she obtained a permit to build the pool, Murray says.

***

• Murray’s story seems to exemplify the peril of tax lien sales which have recently come under investigation by federal authorities. For small amounts, savvy investors can pick up the rights to foreclose upon valuable real estate for a fraction of the property’s value. Then, tacking on interest and legal fees, the lien holders can pressure a homeowner to pay up or lose the property.

• In Murray’s case, the tax lien which court records said was obtained for $1600 netted the firm the right to foreclose on a piece of property assessed at $13,000 and a pool built for $25,000. More importantly, the lien holders have Murray over a barrel, forcing her to pay up or lose her investment in the Spanish-style villa she bought 14 years ago.

For more, see LIEN RUNNETH OVER — How a $435 tax debt turned into a $43,000 headache for a Northwest Baltimore woman.

Ill. App. Court: Consumer's Effort To Undo Debt Buyer's Money Judgment Will Succeed Where Oufit Fails To Register Bill Collection Activities w/ State

A recent ruling by an Illinois Court of Appeals may provide a roadmap for those looking to fight off zombie debt buyers and other bill collectors in their efforts to squeeze cash-strapped consumers out of their scarce cash. Facts:

1. Trice, a resident of Illinois, used his Citibank credit card to pay for some plumbing services.


2. Trice failed to pay the full amount of the charge.


3. Citibank sold the delinquent account to LVNV, a debt collection agency, who then files a lawsuit against Trice.


4. Trice represented himself in the lawsuit and lost, LVNV obtaining a judgment for $3,303.90.


5. Trice then hired counsel, who moved to vacate the judgment, alleging that LVNV had not registered with the State of Illinois as a collection agency before it filed the suit against him.


6. According to Trice, LVNV obtained a license to act as a collection agency some months after LVNV filed the lawsuit against Trice, but some months before the court entered a judgment in favor of LVNV.


7. The trial court denied Trice’s motion to vacate the judgment without hearing evidence because it said Trice should have notified the court before trial that LVNV had not registered as a collection agency.


8. Trice filed an appeal.

The Illinois Court of Appeals vacated the lower court ruling on Trice's motion to vacate and booted the case back to the trial court to determine whether or not LVNV was registered with the state of Illinois as a collection agency at the time it aqcuired Trice's unpaid account from Citibank.

The appeals court said that if LVNV wasn't properly registered with the state at the time it acquired trice's unpaid account, then its purchase of the delinquent account is absolutely void (as opposed to merely voidable) and, consequently, it acquired no enforceable rights to collect from Trice. It noted that because such a judgment would be void (as opposed to being merely voidable), Trice's failure to raise the issue during the trial was not relevant. (Had the appeals court found that such a judgment was only voidable, Trice's lack of diligence in raising the issue may have sunk any attempt to void the judgment).

The ruling makes for a good read, especially for anyone looking to undo a money judgment obtained by a debt buyer who is not properly registered or licensed by the state in which they are attempting collections.(1)

For the ruling, see LVNV Funding, LLC v. Trice, No. 1-09-2773, (Ill. App. 1st Dist. 3rd Div., March 16, 2011).

See Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration for an FTC report on dealing with bill collectors & zombie debt buyers.

(1) A portion of the Illinois appeals court analysis follows (bold text is my emphasis):

• The Illinois General Assembly adopted legislation to license and regulate collection agencies beginning in 1974. Comment, The Illinois Collection Agency Act, 1975 U. Ill. L. Forum 441, 443. The Act, as amended, provides:
• “The practice as a collection agency by any entity in the State of Illinois is hereby declared to affect the public health, safety and welfare and to be subject to regulation and control in the public interest.” 225 ILCS 425/1a (West 2008).“No collection agency shall operate in this State, directly or indirectly engage in the business of collecting, solicit claims for others, *** exercise the right to collect, or receive payment for another of any account, bill or other indebtedness, without registering under this Act ***.” 225 ILCS 425/4 (West 2008).
• A party who acts as a collection agency without proper registration commits a Class A misdemeanor and must also pay a civil penalty. 225 ILCS 425/4.5, 14, 14b (West 2008). Assuming the truth of the allegations in Trice’s section 2-1401 motion, that LVNV had not registered as a collection agency before it sued Trice, LVNV committed one crime when it purchased the debt from Citibank (see 225 ILCS 425/3(d) (West 2008)), and it committed a second crime when it filed the complaint. See 225 ILCS 425/14 (West 2008).
• Williston states the general rule that applies here: “When a contracting party is required to have a license to engage in a business and violation of required licensing statute is made a crime, a contract calling for performance in violation of this requirement is illegal and void.” 10 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts §19.47, at 562 (4th ed. 1993).
• The rule follows from the “elementary principle[] of contract law *** that an illegal contract is void ab initio.” People v. Caban, 318 Ill. App. 3d 1082, 1089 (2001). In support of the general rule, Williston cites Reilly v. Clyne, 234 P. 35, 37 (Ariz. 1925), for the proposition that “where a statute pronounces a penalty for an act, a contract founded on the act is void.” Williston, supra §19.43, at 523.
• And in another case Williston cites, the court said: . “It is the general rule of law that where a statute expressly forbids a person from entering into a certain kind of contract until he performs some precedent act, and imposes a penalty upon such person for attempting to enter into the forbidden contract, the contract itself is absolutely void ab initio and the party penalized has no rights thereunder ***.” Hunt v. Douglas Lumber Co., 17 P.2d 815, 819 (Ariz. 1933), quoted in Williston, supra §19.43, at 523.
• Thus, if LVNV had not registered before it bought Citibank’s interest in Trice’s debt, the contract between Citibank and LVNV was void ab initio because the contract violated the Act and the Act established that this kind of violation constituted a crime. LVNV could not acquire any enforceable rights by its criminal conduct. See Caban, 318 Ill. App. 3d at 1089. In particular, LVNV had no right to any payment from Trice when it sued him for failure to make the payments required under his contract with Citibank. The criminal and civil penalties the Act assigns to LVNV’s alleged acts (225 ILCS 425/4.5, 14, 14b (West 2008)) distinguish this case from Ford Motor.
• The trial court should not enforce a judgment in LVNV’s favor on a complaint LVNV filed in violation of criminal law, because to do so would abet LVNV in the commission of the crime of debt collection by an unregistered collection agency. 225 ILCS 425/4, 14, 14b (West 2008).
• We find that Trice has alleged adequate grounds for vacating the judgment entered in favor of LVNV. If LVNV disputes the accuracy of Trice’s factual allegations, the trial court should hold an evidentiary hearing on the issue before deciding whether to grant Trice’s motion to vacate the judgment.

CONCLUSION

• If LVNV had not registered in Illinois as a collection agency before it purchased Trice’s debt from Citibank, it acquired no rights by its crime of attempting to act as a collection agency. If LVNV had not registered before it filed the complaint against Trice, it committed a second crime of engaging in debt collection without proper registration. The crimes, if proven, make void the judgment LVNV obtained against Trice. Accordingly, we remand for further proceedings in accord with this opinion.

_______________________________

The reference to Ford Motor is to an Illinois Supreme Court ruling in Ford Motor Credit Co. v. Sperry, 214 Ill. 2d 371 (2005), another "failure to register" case involving the violation of a different rule where the court refused to void the judgment involved. In reaching its conclusion in that case, the state Supreme Court emphasized the fact that the rule requiring registration lacked civil or criminal penalties for noncompliance. It therefore concluded that because the rule involved was not enacted for the protection of the public, the contractual obligations owed could not be voided absent a showing of prejudice resulting from the failure to register.

The appeals court in LVNV Funding, LLC v. Trice distinguished the facts before it from Ford Motor by finding that, when passing the debt collection statute, the Illinois legislature declared "the practice as a collection agency by any entity in the State of Illinois" "to affect the public health, safety and welfare and to be subject to regulation and control in the public interest” and provided for both criminal and civil penalties for violation thereof ("A party who acts as a collection agency without proper registration commits a Class A misdemeanor and must also pay a civil penalty." 225 ILCS 425/4.5, 14, 14b (West 2008).)

2nd Suspect Agrees To Go Down In Granite State Sale Leaseback, Equity Stripping Foreclosure Rescue Scam

In Concord, New Hampshire, The Nashua Telegraph reports:

• A Massachusetts woman will join a Nashua real estate agent in pleading guilty to federal mail fraud charges stemming from statewide "equity stripping" scheme that targeted financially trouble homeowners, court records show.

• Prosecutors filed a felony mail fraud charge on March 18 against Sadie Stanhope Ng, 34, of Quincy, Mass., and formerly of Milford and Bedford, U.S. District Court records show. A plea hearing is scheduled March 30, court records show.

• Stanhope Ng was part of the same conspiracy as former RE/MAX agent Richard Winefield of Nashua, who was charged last month and pleaded guilty earlier this month. The scheme involved buying the homes of people facing foreclosure, with the promise that the residents could rent the home and buy it back later, and then refinancing the houses with much larger loans, and pocketing the equity.

• The charge against Stanhope-Ng outlines the scheme in more detail than the one against Winefield, perhaps in part because of information Winefield provided after pleading guilty.(1)

• It includes the allegation that the conspirators also claimed fictitious second and third mortgages on properties when they refinanced, and got those paid off, too, but that practice stopped after Stanhope and two others ran afoul of the state Banking Department, the charge states.

• Stanhope, Michael Prieto and Walter Bressler III were sanctioned by state Banking Commissioner Peter Hildreth by a "cease and desist" order in 2007. The trio were fined $10,000, and they and their various limited liability companies were ordered to repay eight homeowners around the state (including two in Nashua) money gleaned from the sale of their properties. They also were ordered to stop being involved in mortgage brokerage or debt adjustment services in the state.(2)

For more, see Mass. woman charged in home re-fi scam.

See U.S. v. Stanhope Ng for the most recent charge.

(1) See Sale Leaseback Peddler Starts "Singing" To NH Feds After Copping Guilty Plea In Equity Stripping, Foreclosure Rescue Conspiracy.

(2) See Criminal Prosecutions Of Sale Leaseback Peddlers In Equity Stripping Foreclosure Rescue Deals for other incidents that led to criminal prosecutions in sale leaseback deals.

Rooker-Feldman, Issue Preclusion & The Kiboshing Of Homeowners' Federal Lawsuits Challenging State Court Foreclosure Judgments

Lexology reports:

• In recent decisions, various courts have relied upon the Rooker-Feldman Doctrine to bar a consumer’s federal claims regarding the validity of his or her mortgage after the lender obtained a state court foreclosure judgment. See, e.g., Mohorne v. Beal Bank, S.S.B., 419 B.R. 488, 496-97 (S.D. Fla. 2009) (Altonaga, J.); Figueroa v. Merscorp., Inc., et al., Case No. 10-61296 (S.D. Fla., Jan. 31, 2011).(1)

• Under the Rooker-Feldman doctrine, a party is barred from seeking appellate review in a federal district court of a judgment of a state court where the federal claims were inextricably intertwined with those in the state action.

• On Tuesday, March 22, 2011, the Third Circuit Court of Appeals in Kliesh v. Select Portfolio Servicing, Inc., No. 10-3175 (3d Cir., March 22, 2011), 2011 WL 989855, declined to apply the Rooker-Feldman Doctrine, but rather held that the consumer’s claims were barred based on the principles of issue preclusion.

• Select Portfolio Servicing Inc. (“SPS”) filed and obtained a foreclosure judgment in the Pennsylvania Court of Common Pleas. In that action, the plaintiff filed counterclaims against SPS based upon its attempts to collect the past due mortgage payments from the plaintiff. After the conclusion of the state-court case, the plaintiff filed a complaint against SPS, and its parent corporation, Credit Suisse First Boston (USA), in federal court alleging that: (1) SPS filed a fraudulent foreclosure action; violated the Truth in Lending Act (“TILA”), 15 U.S.C. §§1601-67; (3) unjustly enriched itself; (4) violated the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692-1692p; (5) violated the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. §§1681-1681x; and (6) intentionally inflicted emotional distress upon him.

• The trial court dismissed the plaintiff’s complaint based upon the Rooker-Feldman Doctrine. The appellate court, however, agreed that the Doctrine did not apply to the plaintiff’s claims, because the plaintiff “alleged that he was injured by the defendants, not the state-court judgment.”

• Nonetheless, a close cousin to the Rooker-Feldman Doctrine is the principle of issue preclusion. Under the doctrine of issue preclusion, when an issue of fact or of law is actually litigated and determined by a valid final judgment, and determination of the issue was essential to judgment, the determination on that issue is conclusive in a subsequent action between the parties.

• Accordingly, because the plaintiff’s exact arguments were raised and rejected in the state proceedings, the state court’s ruling was conclusive and barred the plaintiff’s federal claims. Additionally, the court held that the plaintiff had abandoned his FCRA and unjust enrichment claims on appeal, and his TILA and FDCPA claims were barred by the applicable statute of limitations.

• The court therefore concluded that any further amendments to the pleadings would be futile, and upheld the trial court’s dismissal of the case with prejudice.

• The above case highlights some of the defenses that may be available to lenders in the rash of cases challenging foreclosure judgments that are sure to continue for the next few years.

Source: The doctrine of issue preclusion barred claims based upon an alleged fraudulent mortgage. (requires subscription; if no subscription, GO HERE, or TRY HERE, then click appropriate link for the story).

(1) For a sampling of Federal Courts of Appeal Rooker-Feldman cases involving state court foreclosure judgments, see:

• 1st Circuit: Silva v. Massachusetts, 351 Fed. Appx. 450; 2009 U.S. App. LEXIS 20287 (1st Cir. 2009) (unpublished);
• 2nd Circuit: Wilson v. Deutsche Bank Nat'l Trust (In re Wilson), No. 10-2021-bk (2nd Cir. February 18, 2011);
• 3rd Circuit: In re Madera, 586 F. 3d 228 (3rd Cir. 2009);
• 4th Circuit: Broome v. Hunter, 2011 U.S. App. LEXIS 1746 (4th Cir. January 7, 2011) (unpublished);
• 5th Circuit: Pease v. First Nat'l Bank,, 335 Fed. Appx. 412; 2009 U.S. App. LEXIS 13444 (5th Cir. 2009) (unpublished);
• 6th Circuit: Tropf v. Fidelity Nat'l Title Ins. Co., 289 F.3d 929 (6th Cir. 2002);
• 7th Circuit: Taylor v. Federal Nat. Mortg. Ass'n, 374 F. 3d 529 (7th Cir. 2004);
• 8th Circuit: Alexander v. DaimlerChrysler Servs. N. Am., L.L.C., 2006 U.S. App. LEXIS 8004 (8th Cir. 2006) (unpublished);
• 9th Circuit: Reusser v. Wachovia Bank, NA, 525 F. 3d 855 (9th Cir. 2008);
• 10th Circuit: DCR Fund I, LLC v. TS Family Ltd. P'ship, 261 Fed. Appx. 139; 2008 U.S. App. LEXIS 1574 (10th Cir. 2008) (unpublished);
• 11th Circuit: Parker v. Potter, Nos. 08-16332, 08-16667 (11th Cir. 2010) (unpublished), although see Nicholson v. Shafe, 558 F.3d 1266, 1276 (11th Cir. 2009), where the Eleventh Circuit recently clarified that if a state appeal is pending, state proceedings have not ended for Rooker-Feldman purposes;
• D.C. Circuit: Hunter v. U.S. Bank Nat'l Ass'n, 698 F.Supp.2d 94, 100 (D.D.C.2010), aff'd, Hunter v. U.S. Bank Nat'l Ass'n, 407 Fed.Appx. 489, 2011 U.S. App. LEXIS 1750 (D.C. Cir. 2011) (per curiam).

Go here for links to at least a few dozen more Rooker-Feldman foreclosure cases.

After reviewing these cases, I think that the moral of this story is that, if a homeowner is going to challenge a state court foreclosure action in a Federal court, it probably better be done before a judgment is entered in the state court.

Attempts To Undo State Court Foreclosure Judgments In Federal Court & The Rooker-Feldman Doctrine

A recent ruling by a Federal Court of Appeals is one of several that serve as a reminder to financially strapped homeowners (and their counsel) who are considering filing for bankruptcy (or filing any lawsuit in a Federal court) for the purpose of specifically attacking an ongoing foreclosure action in a state court, you better do it before a judgment is entered by the state court.

Any effort to run to Federal court in an attempt to attack, undo, void, set aside, etc. a foreclosure proceeding once a judgment is entered by a state court will probably be a waste of time and money, based on the application of the so-called Rooker-Feldman doctrine.(1) (and, for whatever it's worth, if you're an attorney who does this when representing a homeowner while squeezing your unwitting client for stiff legal fees, you're probably opening yourself up to a malpractice lawsuit).

Anyone looking to undo or otherwise attack a state court foreclosure judgment or the court proceeding itself once the judgment is entered is limited to either going back into the state court and file a motion to vacate, set aside, etc., based on jurisdictional issues (ie. lack of standing, defects in giving notice related to process server screw-ups, etc.) or pursue a review with a state appeals court (ie. file an appeal).

For the ruling, see Wilson v. Deutsche Bank Nat'l Trust (In re Wilson), No. 10-2021-bk (2nd Cir. February 18, 2011).(2)

(1) The relevant excerpt from the court ruling follows (bold text is my emphasis):

• Under the Rooker-Feldman doctrine, lower federal courts lack subject-matter jurisdiction over claims that effectively challenge state-court judgments. See District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 486-87 (1983); Rooker v. Fidelity Trust Co., 263 U.S. 413, 415-16 (1923).
  
  After the doctrine was modified by the Supreme Court in Exxon Mobil Corp. v. Saudi Basic Industries Corp., 544 U.S. 280 (2005), we held that there are four requirements that must be met before the Rooker-Feldman doctrine may apply: (1) "the federal-court plaintiff must have lost in state court;" (2) "the plaintiff must complain of injuries caused by a state-court judgment;" (3) "the plaintiff must invite district court review and rejection of that judgment;" and (4) "the state-court judgment must have been rendered before the district court proceedings commenced." Hoblock v. Albany County Bd. of Elections, 422 F.3d 77, 85 (2d Cir. 2005) (internal quotation marks and alterations omitted).
  
  Because dismissal under the Rooker-Feldman doctrine is for lack of subject matter jurisdiction, this Court reviews de novo a court's application of the doctrine. Id. at 83.
  
  Here, application of the Rooker-Feldman doctrine was warranted in light of the connection between Wilson's federal complaint and the state court default foreclosure judgment in favor of DBNTC.
  
  First, the foreclosure judgment in favor of DBNTC indicates that Wilson "lost" in state court. See Hoblock, 422 F.3d at 85.
  
  Second, Wilson instituted adversary proceedings against DBNTC in order to "complain of injuries caused" by the state court foreclosure judgment, see id., as the crux of her complaint was that DBNTC wrongfully foreclosed on the property in question.
  
  Third, in filing her complaint, Wilson "invite[d] [federal] court review and rejection" of the state court foreclosure judgment, see id., as she explicitly sought reversal of that judgment and re-vestment of title through her argument that DBNTC had lacked standing to foreclose.
  
  Fourth, the foreclosure judgment was rendered in June 2008, over five months before she filed her Chapter 7 bankruptcy petition and adversary complaint. See id.
  
  Accordingly, we conclude that the bankruptcy court correctly dismissed Wilson's complaint pursuant to the Rooker-Feldman doctrine. As a result of this conclusion, we are not required to consider Wilson's argument that the Connecticut state court order denying her motion to open and vacate the foreclosure judgment was void, because it was issued in violation of the automatic stay provisions of 11 U.S.C. § 362(a).
  
  We have considered Wilson's other arguments on appeal and have found them to be without merit. Accordingly, the judgment of the district court is hereby AFFIRMED.

(2) For another court ruling reaching the conclusion coming out of the Eleventh Circuit Court of Appeals (in a Florida case), see Parker v. Potter, Nos. 08-16332, 08-16667 (11th cir. 2010) (unpublished).

For another recent bankruptcy case (a New York case) applying Rooker-Feldman, see In re Agard, Case 8-10-77338-reg (Bankr. E.D.N.Y. February 10, 2011).

Go here for links to a couple of dozen more Rooker-Feldman foreclosure cases.

Florida Foreclosure Mill Admits No Wrongdoing In Deal To Cough Up $2M To Cool Off The Heat From State AG Robosigner Probe

The Washington Post reports:

• A Florida law firm agreed Friday to pay the state $2 million in penalties for allegedly mishandling foreclosures — the first deal of its kind since the uproar over the issue began last fall.

• The Law Offices of Marshall C. Watson was among the prominent law firms investigated by state authorities after major lenders, including Bank of America and J.P. Morgan Chase, admitted last fall that their employees had “robo-signed” foreclosure cases without reading them and improperly notarized some documents.

***

• In the Marshall C. Watson case, homeowners complained about robo-signing and notary issues as well as whether documents had been forged, according to the Florida attorney general’s office. They added that their foreclosure notices were not served properly. In some cases, relatives with no stake in the process were served notices and the homeowners were billed to cover the cost of those actions. The settlement does not include any admission of guilt by the law firm.

***

• The settlement also requires the firm to prepare foreclosure paperwork beyond what is required by Florida law.

For more, see Florida law firm to pay $2 million to settle foreclosure fraud charges.

Ex-Foreclosure Mill King Struggles Off Mat, Takes Wild Swing At Freddie In Lawsuit Alleging $1.3M In Unpaid Fees

In Miami, Florida, Bloomberg reports:

• The Federal Home Loan Mortgage Corp. was sued by Florida attorney David Stern, who claims he is owed $1.3 million for legal services, according to a complaint filed [this week]. The government-run mortgage company breached its contract with Stern’s law firm by failing to pay, according to the complaint filed in federal court in Miami.

For more, see Freddie Mac Sued by Attorney David Stern Over $1.3 Million.

Florida Bar Prez Says Some Attorneys Face Profession's "Death Penalty" For Foreclosure Fraud; Outside Lawyer Hired To Work Specifically On Probes

The Palm Beach Post reports:

• Florida Bar President Mayanne Downs predicts some Florida attorneys will pay the ultimate professional price for foreclosure-related wrongdoing - disbarment - as investigations mount statewide. "It's the death penalty of the legal profession," said Downs, who spoke to The Palm Beach Post's editorial board this week about legislative proposals affecting the courts and the state's ongoing foreclosure tumult.

• The bar, which is responsible for investigating complaints of attorney misconduct, has 222 foreclosure fraud cases open on 157 lawyers. Those numbers are up from the end of 2010 when there were just 69 cases pending on 48 lawyers.

• While specifics of the cases are not public, complaints generally about the handling of foreclosures have included knowingly forged signatures on court documents, bad notarizations on assignments of mortgage and shortcuts taken that led to illegal home repossessions. There are also 28 open bar investigations on 23 attorneys stemming from foreclosure defense complaints.

• Although homeowner advocates have grumbled at what they say is a lack of action taken by the Florida bar, Downs assured that her group is taking accusations seriously, even hiring Sunrise-based attorney Joel Klaits to work specifically on the investigations.

For more, see Number of Fla. lawyers under investigation for foreclosure-related wrongdoing grows.

Homeowner Gets Dubious Letter Simulating Official Court Document Demanding Full Loan Payoff Sent By Attorney; Firm Refuses Media Inquiries For Comment

In Tampa, Florida, The Tampa Tribune reports:

• Two weeks before Glen Ables' new, modified mortgage payment was to go into effect, a mysterious letter arrived in the mail. It threatened to derail the plan to save his house from foreclosure. That letter, from a Tampa lawyer, said he and his wife had 30 days to send them the balance of their mortgage. And it came with what looked like a copy of a court document filed in the case.

• "I called BB&T the next morning," Ables said. "They were shocked I got this letter." Even more shocking is the document. The letter implies the document was filed in court. It even says, "13th Judicial Circuit In and for Hillsborough County" at the top. It lists the plaintiff as BB&T, and it's signed by a lawyer.

• The only thing missing is the case number, and no court document is filed without one. In fact, the form was never filed, and there has never been a foreclosure case filed against the Ables, according to a records request by the Tampa Tribune.(1)

• "I would say it's fake," Ables said. "I would say that it's nothing more than a scam to scare people. And I believe that the group that does this did not do its homework."

• It's unclear whether this was intentional or a mistake. But either way, real estate experts say it's a symptom of the vast number of foreclosures on the market and the factory-like way law firms are working through cases.

• The lawyer who signed the form Ables received is Laura Walker with Tampa's Gilbert Garcia Group. She didn't return repeated phone calls over three days and declined to come out of her Tampa office to speak with a reporter. The only other attorney listed on their door, Michelle Garcia Gilbert, also didn't return calls.

For more, see Bogus letter tells man with refinanced mortgage to pay balance.

(1) This letter arguably constitutes a violation of 15 USC 1692e(9) & (10) of the Federal Fair Debt Collection Practices Act which prohibits, in debt collection activities:

• (9) The use or distribution of any written communication which simulates or is falsely represented to be a document authorized, issued, or approved by any court, official, or agency of the United States or any State, or which creates a false impression as to its source, authorization, or approval;
  
  (10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.

Homeowner Lawsuit: Loan Servicer Wrongfully Sought Foreclosure After Screwing Up Application Of Mortgage Payments To Escrow, 'Suspense' Accounts

In Jefferson County, Texas, The Southeast Texas Record reports:

• A Beaumont couple has filed suit against the mortgage holder they claim destroyed their credit ratings and forced them to face foreclosure. Vertis Malvo Jr. and Fran Malvo claim they obtained a home equity mortgage in 2006, a debt that was later purchased by defendant Deutsche Bank National Trust Co. in early 2009.

• In turn, Deutsche designated defendant Select Portfolio Servicing [fka Fairbanks Capital] as a loan servicing agent, according to the complaint filed March 16 in Jefferson County District Court. Since then, Deutsche failed to post payments and credits to the Malvos' accounts and refused to credit the account for errors, the suit states.

• "Select Portfolio Servicing had informed Defendant that Plaintiff did not owe the premiums, but Select Portfolio Servicing continued to demand payment, applied monthly mortgage payments to escrow, or simply held the funds in a 'suspense account' which then created the erroneous reports of late payments to the credit bureaus," the complaint says.

• "These erroneous reports caused Plaintiff to lose an extension of credit." On Jan. 24, Select Portfolio Servicing filed an application for foreclosure on the Malvos' property, wrongly alleging the couple failed to make multiple installment payments, the Malvos claim.

For the story, see Beaumont couple says foreclosure due to mortgage company error.

As Crackdown On Fraudulent Tax Exemption Claims For Florida Homesteads Continues, Lawmakers Ponder Bill To Authorize Up To $500 Whistleblower Bounty

In Orange County, Florida, WFTV-TV Channel 9 reports:

• You pay all your property taxes, but not everyone does. Homestead exemption fraud is taking a big bite out of the tax money for Florida counties, but now more than ever Florida property appraisers are biting back. "It's an extraordinary amount of money," Orange County Property Appraiser Bill Donegan told WFTV.

• Donegan has a homestead compliance unit, three investigators dedicated to finding people they believe are cheating the system. [...] Since 2006, Orange County has collected about $9.5 million in back taxes, fines, and interest from violators. During the same time, Volusia County investigators have brought in more than $14 million.

• In Winter Park, WFTV found one home with a lien worth almost $42,000, the biggest in Orange County. One homeowner in Volusia County owes $120,000. Some other counties will go after homestead exemption violators if they find out about them, but don't have specific investigators. Seminole County is now considering starting its own unit.

• Property appraisers say they have more cooperation with other states and more resources than ever before to help them crack down and find out where people are living. "We have access to the school board, access to voter rolls, we have access to utility companies," Donegan said. Most counties have hotlines to report violators.

• State lawmakers are considering a bill that would give a reward of up to $500 for anyone who reports a property that's in violation.

Source: Cracking Down On Homestead Exemption Fraud.

SWAT Team Gasses Foreclosed Home, Takes Three Suspected Squatters Into Custody On Criminal Trespassing Charges As State DCF Snatches Two Pre-Schoolers

In Naples, Florida, WBBH-TV Channel 2 reports:

• Three people were arrested after authorities were called to a home on Curling Ave. in North Naples just after 8 a.m. Thursday. They had gotten complaints of a disturbance there. When deputies arrived, 25-year-old Ryan Kiskadden reportedly went into the attic of the home. It was then learned that the home is a foreclosure and the people inside were apparently living there illegally.

• As a precaution, the SWAT Team gassed the home before entering to search for Kiskadden. "We like to use every precaution that we can. It's important that we do, especially in light of the incidents in St. Pete involving the officers killed up there," explained Detective Wade Williams, with the Collier County Sheriff's Office.

• Also arrested inside the home were 20-year-olds Mitch Werman and Tatiana Gil. Additionally, the Florida Department of Children and Families took Gil's two children, ages 2 and 3, from the home. [...] Because the home was foreclosed, the adults face criminal trespassing charges.

Source: Three arrested after SWAT situation in Naples.

Duo Cop Pleas To Income Tax Charges; Dodge Fraud Convictions In Alleged Sale Buyback Rental Flipping Scam That Left Unwitting Investors Holding Bag

In Fort Wayne, Indiana, The Journal Gazette reports:

• A Fort Wayne man was sentenced to 2 1/2 years in federal prison Monday for tax charges stemming from a mortgage fraud scheme. Jeffery Radabaugh pleaded guilty in November, the day he was charged with failing to report income he collected from the scheme, which operated from 2005 to 2007.

• He and Tobby Steele were both charged with felony charges of filing false tax returns. Radabaugh and two other people were also charged with misdemeanor charges of failure to file a tax return. [...] In his plea agreement, Radabaugh acknowledged being part of a mortgage fraud scheme that involved more than 100 distressed rental properties.

***

• Radabaugh, an unlicensed real estate broker, admitted to paying mortgage brokers kickbacks to process the loans connected to the properties. Through his own real estate investment company, Radabaugh would locate rental homes for sale, negotiate a price representing the fair market value of the property, obtain an option on the property and then obtain an appraisal that was between 60 percent and 100 percent above the fair market price, court records said.

• Radabaugh would then find a third-party buyer who would purchase the property at the inflated price. Much of the difference would be pocketed by Radabaugh and his company, to the tune of $20,000 to $35,000 per transaction, according to court documents.

• Radabaugh promised the buyers he would find renters for the houses, manage the properties and then buy them back in three years. [...] Throughout the process, Radabaugh pocketed more than $2 million – money he failed to report as taxable income. Radabaugh also lied about the amount of money he made on his 2005 return, misreporting about $60,000 in income, according to court documents.

• Steele, a Churubusco resident, admitted to filing a false tax return, misreporting more than $95,000 in income on his 2006 return, according to court documents. Springmann sentenced Steele to 15 months in prison in February, as well as a year on supervised release.

For the story, see Two sentenced in mortgage plot (Scheme involved more than 100 rental properties).

Florida Foreclosure Attorneys "Routinely Made" False Statements When Cranking Out Cases Through Assembly Line: Fannie 2006 Internal Report

The Wall Street Journal reports:

• Fannie Mae was warned in a 2006 internal report of abuses in the way lenders and their law firms handled foreclosures, long before regulators launched investigations into the mortgage industry's practices.

• The report said foreclosure attorneys in Florida had "routinely made" false statements in court in an effort to more quickly process foreclosures and raised questions about whether some mortgage servicers or another entity had the legal standing to foreclose.

For more, see Fannie Report Warned of Foreclosure Problems in 2006.

Iowa Couple Who Scored 'Free House' When Homestead Law Led To Void Mtg To Face Heat From State AG Probe Into Possible Fraud In Filing Loan Application

The Des Moines Register reports:

• Attorney General Tom Miller has assigned a mortgage investigator to review the case of an Ankeny couple who used a more than 100-year-old law to save their house from foreclosure after making a single payment, a spokesman said this week. Until that review is complete, "it would be premature to say what, if anything, we can do," Geoff Greenwood said.

• Matt and Jamie Danielson blamed a hasty home loan approval by their lender for ultimately being able to keep their house after they proved Jamie did not sign the mortgage in 2007. The Danielsons used that law while in foreclosure and had to make no further payments. The couple won an appeal of their foreclosure case in 2009 before the Iowa Court of Appeals.

• After the story about the Danielsons was published last week,(1) the Register learned that the couple had been involved in other home deals that state title guaranty officials called questionable.

• Inaccurate statements were also made on Matt Danielson's signed loan application. Among them: that he earned $13,000 monthly at a car wholesaler at 1234 Fifth St. in Ankeny - an address where state records show no such business exists.

For more, see State to investigate case of couple who got free house.

(1) See Iowa loophole voids mortgage, gives couple 'a free house'.

Couple Facing Foreclosure Face Criminal Charges For Allegedly Recording Bogus Documents In Public Records To Keep From Losing Home

In Ceres, California, The Modesto Bee reports:

• A Ceres couple was arrested Monday on suspicion of recording bogus documents in an attempt to save their home from foreclosure. Two Southern California men helped Narciso and Alisema Plancarte, ages 58 and 55, prepare documents claiming that they no longer owed IndyMac Bank for a $294,000 loan obtained in 2005, according to an arrest warrant affidavit.

• The owners told an investigator they knew the loan had not been repaid but they were desperate to keep their house and got no refinancing help from the lender, the affidavit says. "I'm just fighting for my house," Narciso Plancarte told investigator Glenn Gulley of the Stanislaus County district attorney's office, Gulley said in the affidavit.

• The documents indicate that one of the Southern California men represents Mortgage Electronic Reporting System and that the company authorized the filings. But company attorneys told Gulley that neither man works for the firm, he reported.

• The case is unrelated to the February arrest of Alan David Tikal, who faces 31 felony charges stemming from an mortgage elimination scheme that may have claimed 20 victims in Stanislaus County.

Source: Ceres couple jailed in effort to save home.

Arizona AG Thwarts BofAs Attempt To Move State's Lawsuit To Federal Court; Action Alleges Deceptive Practices In Processing Loan Modifications

In Phoenix, Arizona, The Arizona Republic reports:

• The Arizona attorney general's lawsuit against Bank of America over alleged mortgage fraud will remain in state court. The lender had asked the case, filed in late December, be moved to federal court. State Attorney General Tom Horne, who inherited the lawsuit from former Attorney General Terry Goddard, said state-court cases often move more quickly then those tried in federal court.

• "Homeowners who have suffered from practices that may violate the Arizona Consumer Fraud Act need timely relief," he said. "And unnecessary delays can be damaging to them."

• The suit alleges BofA deceived borrowers who were trying to obtain loan modifications to keep their homes. The lender is accused of violating the state's consumer-fraud laws by not responding to many homeowners' requests for help, rejecting loan-modification applications without supplying sufficient reason and beginning foreclosure proceedings on homeowners at the same time those borrowers were starting loan modifications.

• The lawsuit was filed after a one-year investigation into the loan servicing and foreclosures practices of the Charlotte, N.C.-based lender, Arizona's largest mortgage holder and servicer.

For the story, see BofA lawsuit to stay in state court (AG says switch to federal level would slow its case over bank's mortgage practices).

Another Alleged HAMP Violation, Another HAMP Lawsuit

In Victoria, Texas, the Victoria Advocate reports:

• A Victoria woman is suing BAC Home Loan Servicing over the wrongful foreclosure of her home. Plaintiff Patricia Garcia originally filed the lawsuit in state court in February. It was re-filed in federal court on March 18.(1)

• Garcia claims BAC, whose principal office is in Plano, committed fraud and trespassed on her homestead title when they not only wrongfully foreclosed on her house, but they also sold it to the Federal National Mortgage Association, aka "Fannie Mae."

***

• In the lawsuit, Garcia claimed BAC committed fraud because they not only proceeded to foreclose upon her homestead before they evaluated her HAMP eligibility,(2) but they were also without legal right to sell her home to Fannie Mae when it was sold, making the sale void.

• Federal law prohibits mortgage servicers participating in HAMP from referring a loan for foreclosure or proceeding with a foreclosure sale on a qualifying loan until a homeowner, who has applied for a modification under HAMP, has been evaluated and, if deemed eligible, offered a trial modification, according to the lawsuit.

• Garcia is seeking to set aside the foreclosure sale(3) and quiet her title to the homestead, re-establishing her as the rightful owner of the property. Additionally, she seeks to recover any damages that she may be entitled to as a result of BAC's premature foreclosure on her homestead. Tony Pitts, the Austin-based attorney for the plaintiff, declined to comment.

For more, see Woman sues over wrongful home foreclosure (Victoria homeowner claims loan servicing company committed fraud when they sold her house).

(1) It wouldn't surprise me that the reason the case was refiled in Federal court was as a result of the bank's request to remove the case to the Federal forum. Such a removal of a lawsuit from a state to a federal court is a commonly used maneuver in civil cases by big-time corporate defendants and their white-shoe law firms in lawsuits brought by individuals and other (possibly under-financed) plaintiffs. Such a removal typically increases the cost of litigation for the plaintiff, and in the event plaintiff's counsel is unfamiliar with litigating a case in a Federal court, this maneuver will effectively leave the case in limbo.

See generally, Judge Says Firm Must Explain ‘Fraudulent’ Removals or Pony Up $25K ("It is widely believed that plaintiffs, particularly individuals rather than corporations, fare better in state courts where they have greater likelihood of getting to a jury and often benefit from more favorable interpretations of law. Defendants in turn tend to prefer the federal courts." For more on fraudulent removals, see footnote 1 of an earlier post.

Now that this case has been refiled in Federal court, the bank can now seek dismissal of the lawsuit altogether (or at least portions thereof) by invoking the Rooker-Feldman doctrine. See footnote 3, below.

(2) For a sampling of other HAMP-related lawsuits brought against lenders & loan servicers for allegedly stringing borrowers along with empty loan modification promises, see:

• State of Arizona v. Countrywide Financial Corporation, et al.,
• State of Nevada v. Bank of America Corporation, et al.,
• Bosque v. Wells Fargo, Class Action Amended Complaint (Exhibits: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, and 11 - eight-page demand letter (offering Wells Fargo opportunity to settle HAMP claims)),
• Johnson v. Bank of America Home Loans Servicing, Class Action Amended Complaint,
• Durmic v. J.P. Morgan Chase, Class Action Complaint,
• Reyes v. OneWest, Class Action Amended Complaint,
• Belyea v. Litton Loan Servicing, Class Action Amended Complaint,
• Ponder et al. v. Bank of America, BAC Home Loans Servicing,
• Fraser v. Bank of America, N.A., et ano., Class Action Complaint,
• Silva v. Citimortgage, Inc., Class Action Complaint.

(3) To the extent some of the claims in this lawsuit are viewed by the court as an attempt by the homeowner to ask a Federal court to reverse the effect of a state court judgment, the chances of a request to set aside the foreclosure sale surviving the bank's motion to dismiss are little to none, based on the so-called Rooker-Feldman doctrine. According to this doctrine, lower federal courts lack subject matter jurisdiction over claims that effectively challenge state court judgments.

The application of the Rooker-Feldman doctrine in a similar foreclosure situation was recently addressed by a Federal appeals court in Wilson v. Deutsche Bank Nat'l Trust (In re Wilson), No. 10-2021-bk (2nd Cir. February 18, 2011) (bold text is my emphasis):

• Under the Rooker-Feldman doctrine, lower federal courts lack subject-matter jurisdiction over claims that effectively challenge state-court judgments. See District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 486-87 (1983); Rooker v. Fidelity Trust Co., 263 U.S. 413, 415-16 (1923).
  
  After the doctrine was modified by the Supreme Court in Exxon Mobil Corp. v. Saudi Basic Industries Corp., 544 U.S. 280 (2005), we held that there are four requirements that must be met before the Rooker-Feldman doctrine may apply: (1) "the federal-court plaintiff must have lost in state court;" (2) "the plaintiff must complain of injuries caused by a state-court judgment;" (3) "the plaintiff must invite district court review and rejection of that judgment;" and (4) "the state-court judgment must have been rendered before the district court proceedings commenced." Hoblock v. Albany County Bd. of Elections, 422 F.3d 77, 85 (2d Cir. 2005) (internal quotation marks and alterations omitted).
  
  Because dismissal under the Rooker-Feldman doctrine is for lack of subject matter jurisdiction, this Court reviews de novo a court's application of the doctrine. Id. at 83.
  
  Here, application of the Rooker-Feldman doctrine was warranted in light of the connection between Wilson's federal complaint and the state court default foreclosure judgment in favor of DBNTC.
  
  First, the foreclosure judgment in favor of DBNTC indicates that Wilson "lost" in state court. See Hoblock, 422 F.3d at 85.
  
  Second, Wilson instituted adversary proceedings against DBNTC in order to "complain of injuries caused" by the state court foreclosure judgment, see id., as the crux of her complaint was that DBNTC wrongfully foreclosed on the property in question.
  
  Third, in filing her complaint, Wilson "invite[d] [federal] court review and rejection" of the state court foreclosure judgment, see id., as she explicitly sought reversal of that judgment and re-vestment of title through her argument that DBNTC had lacked standing to foreclose.
  
  Fourth, the foreclosure judgment was rendered in June 2008, over five months before she filed her Chapter 7 bankruptcy petition and adversary complaint. See id.
  
  Accordingly, we conclude that the bankruptcy court correctly dismissed Wilson's complaint pursuant to the Rooker-Feldman doctrine. As a result of this conclusion, we are not required to consider Wilson's argument that the Connecticut state court order denying her motion to open and vacate the foreclosure judgment was void, because it was issued in violation of the automatic stay provisions of 11 U.S.C. § 362(a).
  
  We have considered Wilson's other arguments on appeal and have found them to be without merit. Accordingly, the judgment of the district court is hereby AFFIRMED.

For another court ruling reaching the conclusion coming out of the Eleventh Circuit Court of Appeals (in a Florida case), see Parker v. Potter, Nos. 08-16332, 08-16667 (11th cir. 2010) (unpublished).

For another recent bankruptcy case (a New York case) applying Rooker-Feldman, see In re Agard, Case 8-10-77338-reg (Bankr. E.D.N.Y. February 10, 2011).

Go here for links to a couple of dozen more Rooker-Feldman foreclosure cases.