Freddie Dumps Foreclosure Mill Targeted In MD Fraud Probe; Accusations Of 1,000+ Robosigned Deeds May Lead To More Crappy Real Estate Titles

In Baltimore, Maryland, The Baltimore Sun reports:

• Freddie Mac has instructed its mortgage servicers to stop referring foreclosure cases to Shapiro & Burson, the Virginia law firm accused of improper handling of more than 1,000 deeds for Maryland homes in foreclosure, the mortgage giant said this week.
• Prosecutors in Prince George's County began investigating the firm in March after a paralegal formerly employed there filed a complaint alleging that deeds and foreclosure paperwork contained fraudulent signatures.(1)

***

• The spokesman, Brad German, called the decision "mutual" and said he could not comment on whether the continuing investigation by the Prince George's County state's attorney's office played a role. But Jose Portillo, the former Shapiro & Burson paralegal who complained to Maryland officials, said Freddie Mac contacted him in March to hear his allegations.

***

• On Wednesday, a spokesman for the Prince George's state's attorney said investigators are speaking with other individuals who have made accusations against the law firm. The state's attorney's office is working with state and federal law enforcement officials on the effort, the spokesman said.

***

• In Maryland, mortgage servicers hire attorneys to shepherd homes through the foreclosure process as "trustees." While he worked at Shapiro & Burson, Portillo alleged, more than 1,000 deeds for Maryland foreclosures were handled not by the appointed trustee but by an outside lawyer who signed the trustee's name.
• "Then they were recorded, and properties had been sold by the bank to new home buyers," said Portillo, who worked at the firm for about three years and said he was laid off with others in February. If deeds aren't signed by the proper person, proving ownership of the home can be difficult or impossible.

For more, see Shapiro & Burson no longer a Freddie Mac- recommended foreclosure law firm (Firm is under investigation for alleged fraudulent signatures on deeds).

Thanks to Bill Roper for the heads-up on the story.

(1) See Laid Off Robosigner Blows Whistle On Foreclosure Mill; Describes Boiler Room Operation Allegedly Set Up To Crank Out Docs w/ Falsified Signatures.

Cattle Call Of 9,000 Wayward Lawsuits Abandoned By Dethroned Foreclosure Mill King Set For Hearing & Possible Dismissal In Palm Beach County

In West Palm Beach, Florida, The Palm Beach Post reports:

• Palm Beach County courts will sort through nearly 9,000 wayward foreclosures in a cattle call of cases from the collapsed Law Offices of David J. Stern. Chief Judge Peter Blanc ordered hearings for pending Stern foreclosures that the firm has said it no longer has the manpower to withdraw from as counsel of record.
• For homeowners, a Friday letter from Blanc to Stern outlining the procedures for case management conferences could mean a dismissal if no one from the bank's side attends the hearing. The bank could re-file the foreclosure, but it would likely cause a delay of months or even a year considering the recent slowdown in new filings.
• Stern told judges in a March 4 letter that he was shutting down his foreclosure business at the end of the month, leaving as many as 100,000 cases statewide in limbo. Blanc asked Stern in his response to reconsider the "unilateral decision to cease representation" of the cases because it is not an approved or recognized way for an attorney to quit a case.

***

• The chief judges in both [Miam-Dade and Broward] counties agree that Stern's letter is not a legal way to withdraw from cases. Linda Kelly Kearson, general counsel for the Miami-Dade courts, wrote in her response to Stern that a withdrawal from an estimated 20,000 cases could not occur with the "submission of a 575-page list of case numbers to the chief judge." Stern's attempt "does not comply with the Florida Rules of Civil Procedure and is thus, unacceptable," she wrote.
• Stern lost most of his foreclosure business in the fall following allegations of mishandled and possibly fraudulent paperwork. The transfer of cases to new attorneys has been difficult, especially considering the firm has since laid off much of its staff.

For more, see South Florida law firm's demise puts 9,000 foreclosures in limbo.

Recent Ruling In Bond Insurer's Suit Could Force Chase To Eat Million$ In Crappy HELOCs; Court Rejects "Onesies & Twosies" Approach To Remedy Breaches

Reuters reports:

• JPMorgan Chase & Co could be forced to repurchase thousands of home equity loans, after a judge ruled in favor of a bond insurer that argued it could build its case based on a sampling of loans.
• The ruling against EMC Mortgage Corp, once a unit of Bear Stearns Cos, comes amid many lawsuits seeking to force banks to buy back tens of billions of dollars of mortgage and other home loans that went sour. JPMorgan bought Bear Stearns in 2008.
• Syncora Guarantee Inc now can pursue claims concerning the entire 9,871-loan pool that backed a securities issue, according to the ruling late Friday from U.S. District Judge Paul Crotty in Manhattan.
• The ruling lowers the hurdle for insurers trying to prove they were deceived by banks, and increases the potential that banks could be forced to buy back more loans. Crotty rejected EMC's claim that Syncora be forced to show breaches related to individual loans.(1) Syncora had insured the interest and principal payments on part of a $666 million mortgage bond backed by the loans.

For more, see JPMorgan loses court ruling over loan putbacks (Syncora can pursue claims based on entire loan pool; Insurer need not show breaches of individual loans).

For the court ruling, see Syncora Guarantee Inc. v. EMC Mortgage Corp., No. 09 Civ. 3106-PAC (USDC, S.D. N.Y. March 25, 2011).

(1) From footnote 4 of the court ruling:

• The repurchase protocol is a low-powered sanction for bad mortgages that slip through the cracks. It is a narrow remedy ("onesies and twosies") that is appropriate for individualized breaches and designed to facilitate an ongoing information exchange among the parties.

  This is not what is alleged here. Here, Syncora alleges massive misleading and disruption of any meaningful change by distorting the truth. The futility of applying an individualized remedy to allegedly widespread misrepresentations is evident in the fact that, of the 1,300 loans actually submitted under the repurchase protocol, EMC has remedied only 20. This .015% success rate does not bode well for the efficiency of employing the repurchase protocol for a generalized claim of breach.

  Accordingly, EMC cannot reasonably expect the Court to examine each of the 9,871 transactions to determine whether there has been a breach, with the sole remedy of putting them back one by one. This transaction was put together in days and months. It is now in its second year of litigation.

Lawyer's 'Boot Camps' Help Growth In Army Of FDCPA Attorneys; Contingent Fee Deals Drive Increase In Table-Turning Consumers' War On Sleazy Collectors

A recent story in the Minneapolis Star Tribune profiled consumer attorney Pete Barry, a local lawyer who's become well-known for his efforts directed not only at putting the squeeze on sleazy bill collection agencies for violating the rights of debtors under the Federal Fair Debt Collection Practices Act ("FDCPA"), but also for training other attorneys around the country through his FDCPA Boot Camp to do the same. An excerpt from the story on how his FDCPA Boot Camp for attorneys was born:

• He quickly came to appreciate the FDCPA as a little-understood protection for consumers. The 1977 law bars collectors from using obscenities or making threats, such as telling someone they will be thrown in jail. It sets fines of up to $1,000 per lawsuit and requires offending collectors to reimburse debtors' attorneys fees. And because it focuses on collectors' practices, rather than creditors, the lawsuits can't be derailed by clauses in credit agreements requiring binding arbitration.
• Barry became one of the first attorneys in the nation to make a living exclusively suing debt collectors. He did so just as consumer debt levels began to mushroom. Between 1997 and 2009, outstanding credit-card debt soared from $515 billion to $969 billion. By 1999, Barry was already winning five-figure settlements in FDCPA cases.
• One day in 2001, Barry got a call from two San Diego attorneys who wanted to know how to build a practice around suing collectors. Barry jumped on a plane and spent the next five days in a Sheraton hotel there, explaining the nuances of the law over salads and Diet Cokes.
• Soon, Barry began getting calls from attorneys everywhere. Would he do a tutorial for them, too? His boot camp was born, helping create an army of FDCPA attorneys. Just two lawyers made a living filing suits under the federal law 20 years ago. Now, there are more than 400.

***

• Barry sees the boot camps as playing a vital role in keeping the collections industry in check. At a recent camp in Minneapolis, he poked fun of collectors who thought they were above the law -- until they got sued.(1)

***

• For all his success, Barry may no longer be the attorney most hated by the collections industry. That distinction has passed to a handful of high-volume law firms that generate thousands of FDCPA cases a year.
• The most prolific is a Los Angeles law firm run by Adam Krohn, a Barry boot camp graduate and founding partner of Krohn & Moss Ltd. Three years ago, Krohn's firm specialized in suing car dealers and manufacturers under state "lemon laws" that protect car buyers against defective vehicles. When auto sales tanked, Krohn turned his attention to FDCPA litigation.
• He sent notices to many of his 40,000 past clients, announcing that his firm had begun suing debt collectors. Today, his firm files 15 percent of all FDCPA lawsuits in U.S. courts, according to WebRecon. "I wish I could tell you a great story about how my mother was driven to madness by a debt collector," Krohn said with a laugh. "But I can't. I love what I do, and I don't mind calling it a business."
• Ten law firms accounted for 40 percent of the 9,290 cases filed nationwide in federal courts against collection firms in 2009, according to WebRecon.

For the story, (a must-read for those looking to slam sleazy collectors), see Debtors in court -- suing collectors (Pete Barry, a Minneapolis attorney, has flown all over the country conducting boot camps for lawyers, teaching them how to sue debt collectors under the federal Fair Debt Collection Practices Act (FDCPA)).

Go here for more on Barry's law firm, Barry & Slade, LLC (We Sue Abusive Debt Collectors™).

(1) Barry plays recordings from tense question-and-answer sessions known as depositions in his boot camps, the story states, and reportedly includes one from a 2005 case that Barry won by prodding a collector into admitting that he swore over the phone.

• "Why did you call my client a low-life piece of shit?" Barry asked the collector, according to the transcript. "In about 10 seconds you're going to have that answer, Mr. Barry," the man replied. "I'd like the answer now, please," Barry said. "Well, you have to get it when I give it. ..." the collector said. "I'm asking you, and I'm going to ask you again, the question is, why did you call my client a low-life piece of shit?" Barry said. "Because in my opinion, a person who doesn't pay his bills ... is a person who in my opinion is a low-life piece of shit," the man replied.

According to the story, the collector lost, Barry and his client were awarded $275,000 in a legal settlement, and is just one of more than 2,000 such cases he has pressed in the past decade. Barry works on a contingency basis, meaning he doesn't collect attorneys' fees unless he wins, the story states.

Dunning The Dead - Putting The Squeeze On Grieving Family Over The Recently-Deceased's Debts

In Minneapolis, Minnesota, the Star Tribune reports:

• Todd Murray recalls the exact moment when he decided to end his brief career as a debt collections attorney. In late summer of 2008, his boss at the collections law firm of Gurstel Chargo in Golden Valley informed him that he would be going after a particularly hard-to-tap group -- the dead.
• "I remember thinking, My God, how can anyone actually do this?" said Murray, now a consumer rights attorney. "The whole idea of calling someone still grieving from the loss of a loved one, over some credit card debt, seemed so repulsive to me. I just couldn't do it."
• Dead men pay no bills, but their grieving families can. Collecting on those debts has become a lucrative specialty in the booming collections industry. Employing tactics developed specifically for persuading the grief-stricken to pay, including the use of sympathy cards and scripted appeals, a select group of collection firms has made this its niche.

***

• Consumer advocates argue that the collection efforts rely on guilt or misinformation to get people to pay. The elderly are particularly vulnerable, they argue, often willing to write a check just to make the phone calls stop.

For more, see Death won't stop these debt collectors (A new breed of collector is targeting the still-grieving family members of people who have died without paying their bills).

In a related story, see Paying the debts of a deceased relative: What you should know.

Minnesota AG Accuses Out-Of-State Outfit Of Upfront Fee Refinance Scam; Allegedly Gained Homeowners' Trust By Masquerading As Their Current Lender

From the Office of the Minnesota Attorney General:

• Minnesota Attorney General Lori Swanson [] filed a lawsuit against Meredian Financial Corporation, a California-based mortgage lender and broker that charged Minnesota homeowners thousands of dollars to refinance their mortgages, but failed to deliver the promised services. Meredian contacted Minnesota homeowners and pretended to be their current mortgage company in order to gain their trust, then extracted thousands of dollars in fees for refinancing services that it did not deliver.

***

• Meredian Lawsuit. [The] lawsuit alleges that Meredian first baited homeowners by passing itself off as their current mortgage lender, then made numerous false representations including low fixed rates, no out-of-pocket expenses, no appraisal requirement, and that the refinance had already been approved by an underwriter, in order to get them to pay up-front “rate-lock” fees.
• Meredian falsely represented that these fees--typically between $1,000 and $4,000--would be refunded at the closing, which it claimed would occur within 30-45 days. Once Meredian obtained the up-front fees from a given homeowner, it would cease work on the loan file, creating excuses such as asking for documents the homeowner had already provided or that were irrelevant to the refinance, or changing the terms of the refinance with higher rates and fees. Homeowners who attempted to cancel and requested that Meredian return their up-front fees were denied refunds.

For the Minnesota AG press release, see Attorney General Swanson Sues Mortgage Lender For Charging Thousands For Refinancing Services That Were Never Provided (Attorney General Warns Citizens About Mortgage Refinancing Schemes That Promise Appealing Refinancing Packages But Collect Fees Without Delivering Promised Services).

More Alleged Fraud At LPS? Say It Ain't So!

AOL's DailyFinance reports:

• Attention homeowners with mortgages, whether you're current or in default: Double-check your mortgage bank's math. There's a significant chance that the bank is wrong about how much you owe them, particularly if you're behind on your payments.
• The revelation that mortgage servicers have been incorrectly applying payments and otherwise messing up their records isn't new. Professor Kurt Eggert of Chapman University documented the problem as early as 2004, and in his recent testimony before Congress, he underscored that nothing had changed. What is new, however, is testimony in New Jersey that gives real insight into how the mistakes are happening.
• Late last week, Adrian G. Lofton gave the New Jersey court that is investigating mortgage fraud in New Jersey a sworn statement (go here and go here) that details how mortgage servicer records are altered by employees of Lender Processing Services. Although the LPS employees are given logins and passwords to access the banks' own records for the purpose of correcting and reconciling the files, Lofton, a former LPS employee, explained how they instead destroyed the integrity of the banks' business records.

For more, see Why Your Bank May Be Wrong About What You Owe on Your Mortgage.

For a related story, see Naked Capitalism: Lender Processing Services Behind More Record-Keeping Botches and Foreclosure Forgeries ("LPS was so keen to crank out volume in the cheapest possible manner that it wouldn’t even add new robosigners. It instead hired temps and had them forge the signatures of existing robosigners ...").

Calif. Appeals Court OKs $300K+ Award To Homeowner In Home Equity Ripoff; Says State Anti-Foreclosure Rescue Statute Applied In Sale To Operator

A California appeals court affirmed a lower court award of over $300,000 to a homeowner facing foreclosure in connection with with a home equity ripoff perpetrated by a foreclosure rescue operator. The ruling also affirmed an additional award of over $350,000 for the homeowner's loss of his personal property that he was forced to leave behind in the home when he was abruptly forced to vacate the premises shortly after the closing of the ripoff transaction.

The appeals court did remand the case back to the trial court for a determination of the legal fees the successful homeowner's attorney is entitled to collect from the losing defendants pursuant to the state's anti-foreclosure rescue statute.

Among the legal issues discussed in the ruling were the application of the California Home Equity Sales Contract Act (Civ. Code, § 1695 et seq.), the 'alter ego' doctrine, and the finding that an altered deed used in pulling off the scam was void ab initio.

For the ruling, see Capon v. Monopoly Game LLC, No. A124964 (Cal. App. 1st Dist., Div. 5, March 4, 2011).

Representing the homeowner were Renee Glover Chantler (Pro Bono Counsel), Marc Belloli (Associate) and Rajiv Dharnidharka (Associate) with the Silicon Valley (East Palo Alto, California) office of DLA Piper LLP.

Outfit Peddling Loan Principal Reduction Services Settles Civil Charges With Arizona AG

From the Office of the Arizona Attorney General:

• Attorney General Tom Horne [] announced a settlement agreement with Scottsdale based Principal Reduction Group, LLC, and Brian Cutright, owner and operations manager of Principal Reduction Group, LLC.
• Pursuant to the settlement agreement, Principal Reduction Group and Brian Cutright agree to no longer engage in any activity, directly or on behalf of any third party, that involves originating, closing, or modifying any term of a consumer’s mortgage loan, or obtaining a reduction on a consumer’s debt, of any kind, while in the State of Arizona or on behalf of any Arizona consumer. [...] Additionally, the settlement agreement provides for full restitution to the consumers who filed complaints with this office; on average, those consumers paid $5,500 each for principal reduction services from the Defendants.
• Finally, the settlement agreement requires the Defendants to pay $25,000 as civil penalties and $5,000 for attorneys costs and fees. The Attorney General shall deposit the funds into the consumer protection-consumer fraud revolving fund. This settlement agreement is pursuant to a consent judgment currently awaiting court approval.

For the Arizona AG press release, see Attorney General Tom Horne Announces Settlement Agreement With Principal Reduction Group, LLC.

HOA Locks Out Dozens Of Maintenance-Paying Residents From Pool, Other Association Amenities Due To Several Delinquent Owners

In Boynton Beach, Florida, the South Florida Sun Sentinel reports:

• Nearly 100 condo owners from the Quail Run development in Boynton Beach remain shut out of their pool, clubhouse and other amenities following a Friday hearing before Circuit Court Judge Timothy McCarthy. McCarthy asked for additional information briefs from attorneys representing the community's condo and master associations.

• They have been at odds over the steps taken against all condo residents because the owners of five or six are in foreclosure and in default of their maintenance dues.

• The judge said it seemed unfair that all would be punished when the master association still is receiving most residents' payments.

***

• A few condo residents with physical impairments — such as Tom Saccomanno, who testified from his wheelchair — testified they needed access to the pool and exercise machines for medical reasons. Saccomanno had polio as a baby, broke his femur a decade ago and had been exercising at the Quail Run pool daily until Feb. 1. He's up to date on his dues to the associations, he said.

• "My toes are numb from not going into the pool," Saccomanno said. "My numbness wasn't there … all these years, never bothered me."

• Haas Gallaway, who said he also has been paying his assessments on time, used the pool after having knee-replacement surgery last fall. He's since had to go to the ocean to do some physical therapy work, he said.

• Dick Cappello, the Quail Run master association's legal liaison, said the master board has no way of knowing who pays and who is in default.

For more, see Quail Run condo owners remain locked out of pool, clubhouse.

Dozens Of Poor Families Face The Boot As Judge Cites Structural, Health Reasons For Tagging Cash-Strapped 'Homeless Hotel' With 'Shut Down' Order

In Colorado Springs, Colorado, KKTV Channel 11 reports:

• Dozens of families living in the Express Inn could soon be forced back out on the streets if the hotel can't get the funds to make repairs and/or avoid foreclosure. The hotel, [...] became a half-way house of sorts for homeless in the community when the city was at the height of its tent city problem.

• [Last week], a judge ordered the hotel be shut down, citing structural and health reasons. The hotel is also in the midst of financial turmoil, and the non-profit hoping to purchase the hotel has yet to be able to strike up a deal.

• Now in the face of being shut down, residents are growing concerned, but also believe a deal can be struck and repairs made before the judge's May 15th vacate deadline. "What we do here is we try to bring people in and help them get back on their feet and provide the care that they need to become self-sufficient" said Matthew Henderson, a resident and an employee. "It's not only my home, it's my livelihood, ya know, I don't have this I don't have nothing".

Source: Half-Way Hotel Facing Judge-Ordered Shut Down (Dozens of families living in the Express Inn could soon be forced back out on the streets if the hotel can't get the funds to make repairs and/or avoid foreclosure).

Minnesota AG Tags Major National 'Zombie Debt' Buyer With Robosigner Suit

In Minneapolis, Minnesota, the Star Tribune reports:

• Employees at a giant debt collection company in St. Cloud "robo-signed" thousands of collection documents without verifying their accuracy, allowing false and deceptive lawsuits to be filed across the country against consumers who didn't owe money, the Minnesota attorney general charged Monday.
• The state lawsuit against Midland Funding LLC, one of the nation's largest debt collection firms, is the first enforcement action in the country against a debt collector for robo-signing, Attorney General Lori Swanson said.
• Midland workers admitted signing up to 400 affidavits a day without reading them or verifying whether a debt was owed, according to the lawsuit. Often, the debts were 10 or more years old, known as "zombie debt," that Midland had purchased for cents on the dollar from credit card companies and other businesses, Swanson said.

***

• The Star Tribune reported last June that Midland had obtained $30 million in judgments against debtors in Minnesota from 2005 through 2009, the most of any collection firm. The revelation was part of the newspaper's investigative series entitled, "Hounded," which revealed the aggressive tactics used by debt collectors.
• Encore and Midland are part of the booming debt-buying industry, which purchases electronic databases of billions of dollars of old, charged-off consumer debt from credit card companies, banks, telecommunications firms and others.
• Debt buyers receive just one line of data on each debtor, including the name, an address and the amount, Deputy Attorney General Nate Brennaman said. When purchasing debts, Midland and other companies do not purchase underlying charge slips and contracts to prove money is owed, according to the lawsuit.

For more, see State files suit against debt firm (Collections giant is accused of "robo-signing" documents).

For the Minnesota AG press release, see Attorney General Lori Swanson Charges One Of The Nation's Largest "Debt Buyers" With Defrauding Minnesota Courts And Citizens By Filing "Robo-signed" Affidavits.

Go here for the Minnesota AG consumer release on the zombie debt buyer industry.

The Continuing Force-Placed Insurance Squeeze

A recent column in The New York Times addresses the problems homeowners face when their mortgage servicers use force-placed insurance to gouge them out of outrageous premiums. Among the abuses reported: threatening homeowners with the imposition of force-placed flood insurance for homes and condos that may not necessarily be located in a flood plain.

For the column, see Insurance Dictated By the Bank.

Some Washington State Homeowners Fall For Pitch Peddling Foreclosure Defense 'Strategy' Asserting 'Sweat Equity' Liens Against Lenders

The Seattle Times reports:

• Fueled by a strange cocktail of legal theories, some Puget Sound-area homeowners facing foreclosure are slapping their lenders with multimillion-dollar "sweat equity" counterclaims and other measures promoted by shadowy consultants.
• But the maneuvers may only deepen the financial and legal difficulties of struggling borrowers. "No reason to waste the money," said a former Monroe homeowner named Jeff, who paid $4,000 to a firm claiming it could avert foreclosure of the home on which he owed about $650,000. His "sweat equity" claim that the lender owed him $2.62 million "actually did no good," said Jeff, who discussed his financial problems on condition his last name not be used. "I don't think it postponed (the foreclosure) a single day."
• The latest rash of such filings originates with a firm called Equitas Solutions, whose website lists a post-office box in Lakewood, Pierce County, but no phone number and no working email.
• At least a dozen local homeowners in recent months have staked out large "sweat equity" claims, all seemingly working from the same Equitas script: First they record a Uniform Commercial Code (UCC) filing with the state Department of Licensing, then a so-called "lis pendens" document with the county recorder's office asserting that litigation on the property is pending.
• The documents are peppered with quaint, quasilegalistic phrases, in one spot demanding payment be made "in lawful money of the United States, a dollar being described in the 1792 US Coinage Act as 371.25 grains of fine silver, or the equivalent of gold, notes or other instruments acceptable to claimant."
• Several Equitas clients followed up their UCC claims with lawsuits in federal court, acting as their own lawyers. Using virtually identical language, they've filed voluminous documents that, among other things, challenge the constitutionality of the state law allowing lenders to foreclose on deeds of trust without going to court.

For more, see Borrowers facing foreclosure try dubious 'sweat equity' claims.

Convicted Loan Modification Scammer Cops Another Plea In Neighboring County; Judge Puts $10K Jail Sentence 'Buy-Out' Deal On Table

In Washtenaw County, Michigan, AnnArbor.com reports:

• A Grosse Pointe man was convicted [last] week of bilking three Saline women who turned to him for help to avoid foreclosure. Bryan Crevier, 50, pleaded guilty to three counts of fraud by false pretenses and avoided a jury trial scheduled to start Monday, Washtenaw County court records show. Prosecutors will dismiss three counts of larceny by conversion between $1,000 and $20,000 at sentencing May 11.
• Authorities charged Crevier last spring after a lengthy investigation by Saline police showed he took nearly $10,000 from the three women who were in financial hardship and wanted to refinance their homes. He presented himself as a mortgage modification consultant but never submitted the victim’s payments or paperwork to lenders.
• Under a sentencing agreement with Circuit Judge Archie Brown, Crevier must repay at least half the full amount he took from the women in 2008, or he faces 60 days in jail, records show.
• The entire amount of restitution, which has not been determined yet, must be paid within two years or he faces another 60 days incarceration.
• Court officials said Crevier submitted checks of $1,000 to each victim at the plea hearing to avoid jail immediately. He remains free pending sentencing.
• Crevier is currently on probation for running a similar scam in Macomb County. He was sentenced to one year probation last fall on two counts of fraud by false pretenses, prison records show. He must also meet a dozen conditions, including repayment to those victims and not leaving the state without the court’s permission.

Source: Man pleads guilty to bilking Saline women he promised to help avoid foreclosure.

Tenants Left Scrambling After Alleged Rent Skimming Foreclosed Landlord Pockets Their 'Move-In" Money For Apartments Subject To Eviction Notices

In Bakersfield, California, KERO-TV Channel 23 reports:

• Renee Fuentez and her family are scrambling to find a new place to live. They moved into an apartment complex on Parker Avenue about two weeks ago, only to find out a week later the complex was in foreclosure. "I asked him if it's for rent and he said, "Yes,"' said Fuentez.

• The person Fuentez is referring to is the owner of the complex, Tommy Apostolides. Fuentez said he took her deposit and first month's rent, but failed to tell her about the problems facing the apartment complex.

• "I gave him $1,350 for first month's rent and deposit and then I called the owner and he said I gave everything to the bank," said Fuentez. "So now they are asking us to be out by a certain date, and we don't have the money. He's not giving his deposit back."

• Candy Rodriguez, who lives in another unit is in a similar situation. "I don't have any where to go," said Rodriguez. Rodriguez said he was living in another complex owned by Apostolides until that complex went into foreclosure.(1)

For more, see Woman Unknowingly Rents Foreclosed Apartment (Renter Found Out Apartment Was Foreclosed A Week After Moving In).

(1) See Staying Home: The Rights of Renters Living in Foreclosed Properties for those tenants left in a bad spot by rent skimming landlords in foreclosure.

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.