Feds Tag Major Securities Rating Service For Disregarding Its Own Standards When Giving High Grades To Crappy Mortgage Bonds That Eventually Imploded, Leaving Unwitting Investors Holding The Bag

The Wall Street Journal reports:

• The Justice Department sued Standard & Poor's Ratings Services late Monday, alleging the firm ignored its own standards to rate mortgage bonds that imploded in the financial crisis and cost investors billions.
  
  The civil charges by U.S. Attorney General Eric Holder against the New York company, one of the bond-rating industry's three giants, are the first federal enforcement action against a credit-rating firm over the crisis. Several state attorneys general are likely to join.
  
  S&P said in a statement earlier Monday that the government suit would be "entirely without factual or legal merit," and denied wrongdoing.
  
  After The Wall Street Journal reported Monday afternoon that the government intended to launch the civil case, S&P confirmed the expected lawsuit and said the rating firm was being punished unfairly by the U.S. government for "failing to predict" the housing meltdown or financial crisis.
  
  The two sides have discussed a possible settlement for about four months, according to people close to the negotiations, but S&P balked over concerns that a deal could sink the company.
  
  The government was seeking penalties of more than $1 billion, another person close to the talks said, which would be the biggest sanction imposed on a firm related for its actions in the crisis.
  
  S&P officials also were rattled that the government was pushing the company to admit wrongdoing that could leave it more vulnerable to pending or new lawsuits by investors.

For more, see U.S. Sues S&P Over Ratings (Justice Department Says Endorsements of Risky Mortgage Bonds Fueled Crisis).

For the lawsuit, see U.S. v. McGraw-Hill Companies, Inc., et al.

Florida Bar Seeks Discipline Against Ex-King Of Now-Defunct Foreclosure Mill

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

• The Florida Bar is seeking disciplinary action against Florida foreclosure baron David J. Stern, whose massive law firm collapsed in 2011 amid allegations that it mishandled the cases of the nation’s largest mortgage holders by filing forged and fraudulent court documents.
  
  Grievance committees found probable cause to pursue punishment in 17 cases stemming from formal complaints made by homeowners, defense attorneys, judges and a bank representative.
  
  It’s the first attempt by the Bar to hold Stern accountable for actions that occurred at his so-called “foreclosure mill,” which grew quickly following the real estate crash to more than 1,500 employees and more than 140,00 cases statewide. Ten probable cause findings were approved Jan. 25 with seven more following on Friday.
  
  Stern’s company closed in March 2011 after losing most of its clients, including federal mortgage backers Fannie Mae and Freddie Mac, as concerns about robo-signing hit lenders and law firms nationwide.
  
  The allegations against Stern where probable cause was found include notary fraud, backdating documents, misleading the court, failing to appear before the Fifth District Court of Appeal, failure of his attorneys to appear at hearings, and the inability of a Michigan-based bank to get clear title to a property because a lawsuit notice was never withdrawn from official records.

For more, see Florida Bar pursues discipline against foreclosure mill boss David J. Stern.

Massachusetts AG Tags Developer In Suit Alleging It Pocketed $200K+ In Buyer Deposits, Then Failed To Deliver Homes Or Return Downpayments

In Boston, Massachusetts, the Boston Business Journal reports:

• A Foxborough real estate developer who fell on hard times after the economic downturn has been sued for allegedly taking — and then refusing to return — more than $200,000 in down payments for new homes in Sharon that were never provided, according to Attorney General Martha Coakley.
  
  The AG's office has obtained a restraining order in Suffolk Superior Court against Michael Intoccia and his companies including Bella Estates Realty Trust, MTI Realty and Intoccia Builders Corp., prohibiting them from accepting future deposits for new homes unless the deposits are put into escrow.
  
  The order also freezes assets enough to pay a possible court judgment, and requires the defendants to disclose records that might reveal the existence of other consumers who paid deposits but never received a new home.
  
  The lawsuit seeks more than $200,000 in restitution for five homebuyers who paid for single-family homes in the Bella Estates development in Sharon. Coakley’s office is also seeking statutory penalties and a further injunction preventing the defendants from taking unsecured deposits.
  
  Intoccia operates a development business in Norfolk County through a network of companies that were involved in the planning, marketing, and construction of the Bella Estates development that was to consist of 29 single-family house lots, according to the complaint. The defendants allegedly solicited buyers and took deposits of up to $55,300 per residence, Coakley said.

***

• According to the AG's complaint, Intoccia and his companies also allegedly made false promises to promptly build homes when they knew that construction was prevented by permitting issues, and in some cases took multiple deposits for the same lot. Homebuyers suffered additional expenses for moving, temporary housing, appliances and fixtures for houses that were never built.
  
  The defendants allegedly held consumers’ deposits long after the final deadlines for closing passed and in some cases more than two years after the deposit was paid. The complaint alleges that the defendants allowed many lots in Bella Estates to fall into foreclosure.

For the story, see Foxborough real estate developer Michael Intoccia sued by AG.

Maine Supremes Smack Title Insurer For Stiffing Policy-Holding Homeowner On Its Duty To Defend Against Neighbor's Title Challenge Relating To Alleged 'View' Easement

From Justia.com US Law:

• [Homeowner] purchased title insurance for a condominium unit she had recently purchased. [Homeowner]'s neighbor subsequently initiated a lawsuit against [Homeowner] alleging that [Homeowner]'s property was subject to a view easement.
  
  [Homeowner] tendered the complaint to her title insurance company (Insurer) requesting a defense pursuant to her title insurance policy. Commonwealth denied [Homeowner]'s request based on certain exclusions in the policy.
  
  [Homeowner] sued Insurer alleging a breach of contract and requesting a declaratory judgment that Insurer had a duty to defend [Homeowner] against her neighbor's complaint. The superior court granted Insurer's motion for summary judgment, finding that the policy specifically excluded the view easement from coverage.
  
  The Supreme Court vacated the judgment, holding that due to the broad nature of the duty to defend and the law's requirement that insurance-policy interpretation be focused on the insured, Insurer had a duty to defend [Homeowner] in the underlying litigation.

Source: Justia.com Opinion Summary - Cox v. Commonwealth Land Title Ins. Co.

Fro the ruling, see Cox v. Commonwealth Land Title Ins. Co.

Contract For Deed Real Estate Deals: 1st Step On Road To Disaster For Wanna-Be Homebuyers?

From an op-ed column in the Minneapolis Star Tribune:

• A Robbinsdale woman faced foreclosure even though she had faithfully made payments. She had purchased her house under a contract-for-deed arrangement, but the seller went bankrupt and didn't pay his lender. So the woman lost her home, the payments she had made and the $25,000 she had put down on the property.
  
  That example -- and dozens of others across the metro area -- bring renewed power to the "buyer beware'' adage. And they demonstrate why more must be done to protect consumers from shady contract-for-deed real-estate deals.
  
  In a Star Tribune investigation published earlier this week, reporter Jeffrey Meitrodt tracked hundreds of questionable property transactions. In examining 1,330 deals over the past five years, he found that many of the homes were sold for highly inflated prices, with high interest rates and other terms that almost guaranteed that buyers would default. Hundreds of deals occurred without housing inspections that would have revealed code violations and safety hazards.
  
  Contract sales typically occur as private agreements with no bank, appraisals or lawyers involved. The seller acts as the bank by financing the sale and collecting payments. If the seller still has a mortgage on the property, then he or she must continue to make the payments.
  
  Traditional property transactions take months to complete and involve title searches, credit checks, truth-in-housing appraisals and inspections. But contract sales can be done with little or no oversight.
  
  In fairness, not all of these transactions are bad deals. Historically, they have been used between friends, relatives, neighbors, or longtime renters and landlords to help transfer home ownership. And the Greater Metropolitan Housing Corp. nonprofit has successfully used the process to help lower-income people successfully buy homes and stabilize struggling neighborhoods.
  
  Yet in recent years, these agreements have morphed into big business for some landlords and real-estate investors. In Hennepin and Ramsey counties, registered contract sales grew from 539 in 2007 to 841 in 2012 -- not including transactions that were never formally registered.
  
  Housing advocates call the deceptive contract deals yet another form of predatory lending that take advantage of lower-income, less-experienced buyers and renters. Ron Elwood, supervising attorney with the Minnesota Legal Services Advocacy Project, said that when the mortgage crisis prompted a government crackdown and tighter lending, some unscrupulous landlords and sellers moved into the contract-for-deed business.
  
  Elwood said some of his clients thought they were signing new rental forms and learned later that they were contracts used to help the building owners "get around'' city housing code requirements for rental properties.

For the op-ed column, see Editorial: Risky housing deals need more scrutiny (Too many contract-for-deed property buyers are victimized).

See also Contract for deed can be house of horror for buyers (High-risk housing often is sold on such contracts, with little or no oversight).

Dilapidated Homes Sold By County Officials At Tax Foreclosure Sales Are Subsequently Being Demolished By Order Of Local City Officials, Leaving Unwitting Homebuyers Caught In Middle

In Jackson, Michigan, MLive reports:

• Terrence Hill had spent months working on a new home he thought he'd bought in a Jackson County tax foreclosure sale in September.
  
  He'd sunk $3,000 in the home on Maple Avenue — putting on a new roof, installing brand new carpeting and putting up new drywall. Just new windows would have completed the home, which he planned to rent out.
  
  On Friday, Jan., 18, Hill discovered the city had turned utilities off and claimed the home was on its demolition list. Just three days later, he headed over to the property, only to see a crane tearing down the home he'd worked on for four months. “I just couldn’t believe it,” he said. “I was shocked.”
  
  Hill isn't alone in his confusion.
  
  Homeowners who think they are helping the city tackle blight by purchasing foreclosed homes are finding themselves in a much different fight.
  
  Several homeowners who say they've bought houses in a Jackson County tax sale are seeing their new homes demolished, or scheduled to be knocked down.

***

• Although the properties have been purchased from the county, city officials say the structures on them are governed by city housing codes and state building codes.
  
  Buyers also only purchase the deed to a property at tax auctions, this allows the city to demolish them, even if the property is sold by the county, officials said.

For more, see Jackson residents upset over demolition of city homes purchased in county tax sale.

FTC Issues New Report On Zombie Debt Buyers, Their Structure & Practices

From The Consumerist:

• In spite of the many rules imposed on the debt collection industry, it still generates, by far, the largest number of complaints to the Federal Trade Commission each year. That’s why the agency recently completed a lengthy investigation into debt-buyers and why they do such a bad job.
  
  Specifically, the FTC wanted to know why debt-buyers, the companies that snatch up old debt from other companies for pennies on the dollar, seem to constantly be contacting the wrong people and/or using incorrect information about the debt.

For more, see 8 Things We Learned From FTC Report On Debt-Buyers.

See also New FTC Report Highlights Problems in the Collection of Purchased Debt, Consistent with Legal Aid Client’s Experience.

From the Federal Trade Commission, see The Structure and Practices of the Debt Buying Industry:

• 50-page report plus tables and appendices,
• Press release.

Florida Lawyer Gets Bar Boot For Role In Nationwide Loan Modification, Foreclosure Defense Racket

In Fort Lauderdale, Florida, the South Florida Business Journal reports:

• Fort Lauderdale attorney William Timothy O’Toole was permanently disbarred recently as part of the Florida Bar and Florida Supreme Court’s attorney discipline actions.
  
  In 2011, the Bar said it had received 20 complaints about O’Toole. In a petition for emergency suspension at the time, O’Toole was accused of allowing non-lawyers to improperly solicit clients on his behalf for loan modifications and foreclosure defense on a nationwide basis, despite the fact he can only practice law in Florida.
  
  He was alleged to have been splitting fees with non-lawyers, a violation of Bar rules. The Bar announced O’Toole’s disbarment in a monthly release that included discipline actions for five other attorneys in Florida in December and January.
  
  O’Toole’s permanent disbarment took effect on a Jan. 24 court order. He was found in contempt for failing to comply with a May 22 disbarment order, that might have allowed his reinstatement at some point if he had complied with conditions of the order. But the Bar said in a news release that O’Toole failed to comply with providing a sworn affidavit with names of people who had received a copy of his disbarment order.

Source: Fort Lauderdale foreclosure attorney permanently disbarred.

Career Lowlife Gets 12+ Years For Role In Effort To Swipe Cape Cod Man's $2.8M+ Waterfront Property

From the Office of the U.S. Attorney (Boston, Massachusetts):

• A New York man was sentenced [] in connection with a scheme to defraud a Massachusetts man of his Hyannis waterfront property.
  
  Michael Howard Clott, aka Michael Howard, 60, was sentenced [...] to 152 months, followed by 36 months of supervised release, forfeiture of $1,269,168 and ordered to pay $1,425 in restitution. In November 2012, Clott pleaded guilty to three counts of mail fraud and three counts of wire fraud.
  
  From December 2009 through April 2010, Clott spent several months on Cape Cod engaged in a scheme to defraud a Massachusetts man of a property he valued at more than $2.8 million.
  
  During this period Clott was a fugitive from a federal criminal case against him in New York. Clott used the alias “Michael Howard,” and represented to others that he was an attorney and financial executive who specialized in purchasing, repairing and marketing bank-owned real estate when, in fact, Clott was none of those things.
  
  Clott, however, persuaded a local real estate broker to sell a client’s property for half the asking price, then give the sale proceeds to Clott who would use his purported financial expertise to generate an after-tax benefit for the client equivalent to the client’s asking price.
  
  Instead of using the proceeds for the client’s benefit, Clott manipulated others to unwittingly assist in negotiating the proceeds check to enable him to deposit the funds in an account for Clott’s personal benefit. However, Clott’s scheme was discovered and the funds were secured before Clott could further disburse or conceal them.
  
  During the past 30 years, Clott has either been engaged in significant fraud schemes, or been serving time in prison for those schemes.
  
  Most recently, Clott was sentenced by the Southern District of New York to 259 months in prison which he will serve concurrent to his sentence in the District of Massachusetts.

For the U.S. Attorney press release, see New York Man Sentenced for Cape Cod Property Fraud Scheme.

Recent California High Court Decision Involving Loan Modifications Resets State Law On Parol Evidence When Trying To Establish Fraud When Entering Into Written Contracts

In Fresno, California, The Business Journal reports:

• It’s rare that a legal case originating in the San Joaquin Valley makes it as far as the state Supreme Court. It’s even more rare that the case sets a precedent changing a decades-old law for years to come.(1)
  
  That’s exactly what happened this month when the seven-judge Supreme Court of California ruled in favor of limiting fraud liability in contract cases and overturning a provision that has protected defendants for the last 78 years.
  
  At issue was an agreement signed between River Island Cold Storage of Dinuba and the company’s lenders, the Fresno-Madera Production Credit Association, to restructure more than $775,000 in debt.
  
  According to the deal inked in March 2007, Lance and Pamela Workman, who own River Island Cold Storage, agreed make specified payments and a pledge of eight separate parcels of land as additional collateral. In return, the credit association promised it would take no enforcement action on the debt for three months.
  
  Although the Workmans failed to make the required payments as stated in the written agreement, they claimed the association’s vice president approached them prior to its signing and modified the deal.
  
  Under that oral agreement, which was highly contested in court for the next four years, the couple believed their loan was extended for two years in exchange for additional collateral consisting of two ranches.
  
  Keeping in step with the written agreement’s terms, the association recorded a notice of default after the company failed to make the required payments within the three-month forbearance.
  
  Although eventually paying off their debt and avoiding foreclosure proceedings, the Workmans later filed suit, seeking damages for fraud and negligent misrepresentation, and including causes of action for rescission and reformation of restructuring the agreement.
  
  What followed was a legal can of worms that hasn’t properly been reopened for several decades...

For more, see State Supreme Court resets precedent with local case.

For an earlier post on this case, see California Supremes: Oral Promises Not Appearing In Written Contract Admissible In Court When Trying To Prove Bankster Fraudulently Tricked Borrower Into Signing Agreement.

(1) Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Association, S190581 (January 14, 2013).

In actuality, this case dosesn't create new precedent, it merely resets the law back to the pre-1935 precedent, prior to the state high court ruling in Bank of America etc. Assn. v. Pendergrass (1935) 4 Cal.2d 258, 263 ("Pendergrass"), a ruling that apparently sidetracked California law for the last 75+ years. From the recent ruling:

• Plaintiffs, who prevailed below, not only defend the Court of Appeal's holding but, alternatively, invite us to reconsider Pendergrass. There are good reasons for doing so.
  
  The Pendergrass limitation finds no support in the language of the statute codifying the parol evidence rule and the exception for evidence of fraud. It is difficult to apply.
  
  It conflicts with the doctrine of the Restatements, most treatises, and the majority of our sister-state jurisdictions. Furthermore, while intended to prevent fraud, the rule established in Pendergrass may actually provide a shield for fraudulent conduct.
  
  Finally, Pendergrass departed from established California law at the time it was decided, and neither acknowledged nor justified the abrogation.
  
  We now conclude that Pendergrass was ill-considered, and should be overruled.

Another Elderly Couple Gets Screwed Over By Reverse Mortgage Peddlers; Now-Widowed 91-Year Old Faces The Boot From Family Home After Being Unwittingly 'Deleted' From Loan, Title Documents

Real estate columnist Kenneth Harney writes:

• The federal Department of Housing and Urban Development has a birthday gift for widow Jeanette Ogle that should cause any senior to think twice before signing up for a government-insured reverse mortgage.
  
  Later this month, on Ogle’s 92nd birthday, her home in Lake Havasu City, Ariz., is scheduled for foreclosure — not because she did something wrong. Instead, she is expected to lose her house because during a refinancing in 2007, only her husband’s name was included on the reverse mortgage documents prepared by a loan broker. This was despite the fact that both her husband’s and her names were clearly listed as co-borrowers in the documents for the mortgage being refinanced, Ogle says, and the longtime married couple wanted no change in that status.
  
  But under a controversial policy that is drawing national scrutiny and at least one major lawsuit, HUD — the agency that runs the reverse mortgage program — now insists that when a spouse dies, and the surviving spouse’s name is not on the loan documents, the full mortgage balance becomes due and payable. If a relative or the surviving spouse cannot purchase the house and pay off the debt, the loan may be subject to a foreclosure sale.
  
  Ogle, whose husband, John, died in 2010, says she cannot imagine why she is facing foreclosure. “We did everything we were supposed to do,” she says. “I signed every piece of paper, we followed the rules.” Jeanette and John assumed that the loan they initially took out in 2004 would allow them to do what advertisements for reverse mortgages consistently promise: stay in their home indefinitely, with some extra money for living expenses.
  
  But it’s not turning out that way.
  
  “I just don’t understand why they are doing this to me,” she said in an interview. “I don’t want to lose my home.”
  
  HUD’s reverse mortgage program, run through the Federal Housing Administration, has been big business. Promoted on TV by pitchmen such as Hollywood’s Robert Wagner and former Sen. Fred Thompson, there were 582,000 loans outstanding nationwide as of November 2011, according to the Consumer Financial Protection Bureau, which issued a critical evaluation of the program last year.
  
  Reverse mortgages are restricted to seniors 62 years or older. The program allows homeowners to tap into equity and pull out money for use in their retirement years. As long as they pay their property taxes and hazard insurance, generally they don’t have to repay any of the money until they move out, die or sell the house.
  
  The policy change on surviving spouses that has snagged Jeanette Ogle was not adopted until late 2008, more than a year after the Ogles’ refinancing. That change has been challenged in a federal lawsuit filed by AARP, the seniors advocacy group.
  
  On behalf of two widows and one widower — Ogle was not a plaintiff — who were threatened with foreclosure, AARP charged that HUD disregarded clear statutory language that allows surviving spouses to remain in their homes even if their name is not on the documents. In an appellate court ruling last month, U.S. Circuit Judge Laurence Silberman said that the court was “somewhat puzzled as to how HUD can justify a regulation that seems contrary to the governing statute.”(1)
  
  HUD had no comment on that ruling, which sent the case back to a lower court, and refused to discuss Ogle’s pending foreclosure. So did Ogle’s loan servicer, Reverse Mortgage Solutions of Spring, Texas, which initiated the foreclosure action. Fannie Mae, the federally regulated mortgage investor that owns Ogle’s loan, said the foreclosure would have to proceed because the mortgage is insured by FHA and that agency’s rules effectively require it, given the absence of Ogle’s name on the documents.
  
  Andrew Wilson, a Fannie Mae spokesman, says the company has a document purportedly signed by the Ogles acknowledging that their refinanced mortgage lists only John Ogle as the borrower. Jeanette Ogle says she has no recollection of signing anything of the sort. “Why would we?” she asked in an interview. Wilson says that whatever the facts, Fannie Mae is “sympathetic” toward Ogle’s plight, and will seek to delay any post-foreclosure eviction.
  
  Jean Constantine-Davis, AARP’s senior attorney on the surviving spouse suit, called Ogle’s circumstances “pretty horrible,” and said HUD’s “current regulation has been devastating on surviving spouses.” AARP’s suit alleged that there are “hundreds” of elderly victims of the policy.
  
  Ogle’s son, Robert, has asked the Arizona state Attorney General’s Office to intervene and investigate how his mother’s name was left off the mortgage. But in the meantime, the clock is ticking toward Jeanette Ogle’s foreclosure. And her 92nd birthday.

Source: Reverse mortgage rule threatens widow with foreclosure; AARP files challenge.

(1) Bennett v. Donovan, 11-5288 (D.C. Cir. January 4, 2013).

See also Widows/Widowers Who Are Not Named In Now-Deceased Spouse's Reverse Mortgage Score Big Appeals Court Win In Effort To Dodge Foreclosure Boot; HUD Regs That Seem Contrary To Statute Leave 3-Judge Panel "Somewhat Puzzled".

Colo. Appeals Ct: OK For Title Insurer To Thwart Undisclosed Mortgage Holder's F'closure Attempt, Stiff It On Claim Where Payoff Funds Were Properly Paid To Authorized Servicing Agent Who Subsequently Stole The Cash; Insurer's Failure To Obtain Note, Lien Release At Closing Not Fatal

Colorado attorny Jim Flynn writes in the Colorado Springs Gazette:

• Title insurance is a unique insurance product in that the insurance company has almost total control over the risks it insures. This is because what the title insurance company insures is the accuracy of its own search of the public records and the correctness of the closing services it provides.
  
  Contrast this to the company that insures, say, your car. There the insurance company has no control over people crashing into you, rocks flying through your windshield, carjackings, etc.)
  
  Although claims under title insurance policies are rare, when they occur, the cost of the insurance will prove to have been money well spent. A case decided in 2011 by the Colorado Court of Appeals demonstrates the point.(1)
  
  In this case, Brenda Armijo purchased a house from Kimberly Poladsky. Poladsky had a mortgage on the property that needed to be paid off at the closing. The mortgage was owned by a company called Dakota Lending. However, Dakota Lending had borrowed money from Citywide Bank and had used Poladsky’s mortgage as collateral for this loan. Therefore, the original of the promissory note Poladsky had signed was not held by Dakota Lending; it was locked up in a drawer at Citywide Bank.
  
  Dakota Lending nonetheless continued to collect the payments on the Poladsky mortgage. And Citywide had not filed anything in the real estate records showing it had an interest in this mortgage.
  
  At the closing of the sale from Poladsky to Armijo, Armijo paid the purchase price to the title insurance company. The title insurance company in turn paid Dakota Lending the amount still owing on the Poladsky mortgage. Dakota Lending should then have paid Citywide, obtained the original promissory note, marked the note paid and sent the note on to the title insurance company so the Poladsky mortgage could be released. Instead, Dakota Lending’s owner stole the money.
  
  Since Citywide hadn’t been paid and still had the original Poladsky note, it started a foreclosure against Armijo’s property. Armijo thereupon filed a claim under her title insurance policy and said: “Fix this please.” The title insurance company dutifully went into action to stop the foreclosure and Armijo’s problem was over.
  
  But the title insurance company’s legal work had just begun.
  
  The title insurance company could have simply paid Citywide what it was owed. However, its position was that Dakota Lending had acted as Citywide’s agent when it collected the payoff for the Poladsky mortgage. And a payment to an agent constitutes a payment to the principal.
  
  Thus, the title insurance company argued, Citywide had been paid and had no right to foreclose. The fact that its agent stole the money was Citywide’s problem, not the title insurance company’s problem. Citywide argued that, since it still had possession of the original Poladsky note, it should be protected from Dakota Lending’s fraud and it should be able to foreclose.
  
  Both the trial court and the Court of Appeals sided with the title insurance company and concluded that possession of an original promissory note, once a sacred concept in the law, didn’t count for much in this circumstance and the title insurance company had no duty to obtain possession of the original note before giving the mortgage payoff to Dakota Lending.
  
  Citywide still has a claim against the thief, but good luck with that. Since he’s in prison, his current income is quite limited.

Source: Money & the Law: The role of title insurance.

For the Colorado appeals court ruling, see Citywide Banks v. Armijo, ___ P.3d ___ (Colo. App. 10CA1458, Oct. 13, 2011) (principal may be bound by agent's actions if agent acts pursuant to either actual   or apparent authority).

(1) The background facts of the case, lifted from the appeals court ruling, are set forth below:

• In 2003, Dakota Lending, LLC (Dakota) executed a promissory note to Bank in exchange for a revolving line of credit that allowed Dakota to borrow up to $4 million. Dakota used this line of credit to finance its business of buying, selling, and holding real estate mortgages. As security for Dakota's revolving line of credit, Bank took assignments of the promissory notes and deeds of trust that Dakota financed or acquired in its course of business.
  
  In 2007, Kimberly Poladsky and RE Services, LLC (collectively, RE Services) executed a promissory note (Note) payable to Jaguar Mortgage Company. The Note was secured by a deed of trust that encumbered the property at issue here. After a series of transfers Dakota acquired the Note. Dakota then assigned all of its rights and interest in the Note and accompanying deed of trust to Bank. While Bank held the Note, it allowed Dakota to service the loan and to retain for itself periodic payments made on the Note.
  
  In 2008, RE Services sold the property to Armijo. Title insurance was purchased from Stewart Title, which conducted the closing of the transaction. Stewart Title obtained a payoff statement from Dakota. At closing, Armijo tendered the purchase price, and Stewart Title accepted those funds as closing agent.
  
  Stewart Title did not demand production of the Note at closing, and did not attempt to determine the identity of the Note holder.
  
  Bank alleges that Stewart Title also failed to obtain a release of the deed of trust at closing.
  
  Stewart Title issued a check payable to Dakota for the amount listed on the payoff statement. However, Dakota never tendered the payoff funds to Bank.
  
  Dakota is now defunct and its managers are under criminal indictment. Bank, which still holds the Note, has declared the Note to be in default.
  
  Bank brought this action against Armijo to foreclose its lien on the property based on the unpaid Note balance. After a bench trial, the trial court, in a detailed and well-reasoned order, determined that Dakota was Bank's agent and had authority to receive the payoff of the Note. It therefore concluded that Bank was not entitled to foreclose on the property.

LPS To Cough Up $127M To 46 States, D.C. To Resolve Allegations It Fraudulently Manufactured Legal Documents Used To Foreclose On Homeowners

Bloomberg reports:

• Lender Processing Services Inc. (LPS) reached a multistate settlement to resolve claims of improper foreclosure practices, including the “robosigning” of documents used to repossess homes.
  
  The $127 million settlement involves 46 states and the District of Columbia, LPS said [] in a statement. The settlement also will require LPS to reform practices and correct faulty foreclosure paperwork, Illinois Attorney General Lisa Madigan said in a separate statement.
  
  “LPS and its subsidiaries became a sort of document factory, literally rubber stamping thousands of foreclosures with no regard to fairness and accuracy in the process,” Madigan said.
  
  State attorneys general came together in 2010 to investigate claims of improper foreclosure practices by mortgage servicers, including robosigning, in which people rapidly signed documents without verifying facts. Five mortgage servicers, including JPMorgan Chase & Co. (JPM) and Bank of America Corp., last year reached a $25 billion settlement with 49 states and the federal government.
  
  “This settlement reflects the efforts of the states to work together to remedy the widespread abuses occurring in the residential mortgage industry in the past few years,” Florida Attorney General Pam Bondi said in a statement.
  
  Previous Agreements
  
  LPS, based in Jacksonville, Florida, said the agreement resolves a probe into document preparation, verification, signing and notarization practices. The company’s shares rose 7.5 percent to $24.08 at 2:04 p.m. in New York.
  
  LPS said it reached previous agreements with Missouri, Delaware and Colorado, leaving a complaint filed by Nevada as the only unresolved attorney general inquiry. LPS Chief Executive Officer Hugh Harris said the settlement is “another major step toward putting issues related to past business practices behind us.”
  
  The states’ investigation found an LPS subsidiary engaged in “surrogate signing,” which is the signing of documents by an unauthorized person in the name of another and notarizing those documents as if they had been signed by the proper person, Madigan said.
  
  New York Attorney General Eric Schneiderman said in a statement that the settlement will prohibit signatures by unauthorized people or those without first-hand knowledge of the facts attested to in foreclosure documents.

Source: LPS Reaches $120 Million Deal in ‘Robosigning’ Probe.

Philly Federal Judge Invokes 'Rooker-Feldman' To Boot Homeowner's F'closure Evict Challenge; Says Suit Appears To Be Improper Attempt To Invite Federal Court Review Of State Court Judgment

In Philadelphia, Pennsylvania, The Pennsylvania Record reports:

• A U.S. District Court judge has refused to review a federal case initiated by a Philadelphia man against the city’s sheriff, acting sheriff and the attorneys who had represented a loan services company involved in an underlying case that arose from the foreclosure and subsequent ejectment of the man’s property.
  
  In his federal complaint, Omar Jamaladdin asserted that the federal court has jurisdiction over his case, citing various federal statutes and constitutional amendments that were allegedly violated through the defendants’ actions.
  
  Judge Thomas N. O’Neill, Jr., of the Eastern District of Pennsylvania, however, noted in a Jan. 29 memorandum that it appears as though the plaintiff is seeking to have the federal court review the propriety of a state court ejectment action, which the jurist stated is barred by the Rooker-Feldman doctrine that says a district court lacks subject matter jurisdiction to conduct a review in this type of case.
  
  “Stated another way, the Rooker-Feldman doctrine bars claims where entertaining the federal claim would be the equivalent of appellate review of the state court Order,” O’Neill wrote.(1)

***

• The two lawyers had represented Aurora Loan Services in its mortgage foreclosure action filed against Jamaladdin, the plaintiff in this case, back in September 2010, the court docket sheet in the state case shows.
  
  The record further shows that in mid-November of this year, Philadelphia Common Pleas Court Judge Idee C. Fox denied a motion by Jamaladdin to vacate the judgment.
  
  In dismissing the federal action with prejudice, O’Neill wrote that it is apparent from reading the complaint that it is “nothing more than an improper attempt by plaintiff to avoid the judgment of eviction rendered by the Court of Common Pleas of Philadelphia County.” O’Neill’s ruling comes after the defendants in the federal action all filed motions for dismissal.

For the story, see Federal judge refuses to review state court action arising from foreclosure and ejectment.

For the ruling, see Jamaladdin v Dietterick, No.12-4686 (January 29, 2013).

For prior posts applying the Rooker-Feldman doctrine in foreclosure cases, see:

• Attempts To Undo State Court Foreclosure Judgments In Federal Court & The Rooker-Feldman Doctrine,
• Rooker-Feldman, Issue Preclusion & The Kiboshing Of Homeowners' Federal Lawsuits Challenging State Court Foreclosure Judgments.

(1) The Rooker-Feldman doctrine applies to "cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments." Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005); see also In re Madera, 586 F.3d 228, 232 (3d Cir. 2009) ("The Rooker-Feldman doctrine is implicated when, in order to grant the federal plaintiff the relief sought, the federal court must determine that the state court judgment was erroneously entered or must take action that would render that judgment ineffectual.").

Newark Feds Bag Nine In Alleged Mortgage Fraud Racket Involving Short Sale 'Flips'

From the Office of the U.S. Attorney (Newark, New Jersey):

• Nine people involved in a long-running, large-scale mortgage fraud scheme that caused losses of approximately $10 million were charged in two Complaints with conspiracy to commit bank fraud, U.S. Attorney Paul J. Fishman announced.
  
  Jose Luis Salguero Bedoya, also known as Jose Salguero, 36, of Elizabeth and Verona, N.J.; Paul Chemidlin, Jr., 41, of Morganville, N.J.; Delio Coutinho, 50, of Colonia, N.J.; Joseph DiValli, 44, of Jackson, N.J.; Christopher Ju, 26, of East Brunswick, N.J.; Carmine Fusco, 44, of East Hanover, N.J.; Jose Martins, 31, of Newark, N.J.; Yazmin Soto-Cruz, also known as Yazmin Soto, 32, of Elizabeth, N.J.; and Kenneth Sweetman, 32, of Lyndhurst and Nutley, N.J., were arrested this morning by FBI special agents.

***

• According to the Complaints:
  
  From March 2008 to July 2012, the defendants engaged in multiple mortgage fraud conspiracies targeting at least 15 properties in and around Newark and Elizabeth, N.J. The defendants mortgage frauds took several forms, including obtaining control of properties through fraudulent “short sale” transactions, short sale flips, and identity theft. They submitted materially false mortgage loan documents to lenders in order to obtain loan proceeds, which the defendants then used for their own financial gain. The defendants also obtained money through various sales to straw buyers.
  
  From March 2008 to June 2010, Salguero, Coutinho, Ju, and Soto conspired with each other and others to release liens on encumbered properties via fraudulently arranged short sale transactions. This allowed the defendants to profit from new fraudulent mortgage loans obtained on the properties from other mortgage lenders.
  
  To complete the short sale transactions, the defendants submitted materially false closing and other documents to mortgage lenders. They submitted materially false mortgage loan applications to mortgage lenders to obtain new mortgage loans on properties in and around Elizabeth, New Jersey, including a property on Fulton Street.

For the U.S. Attorney press release, see Nine Charged In $10 Million Mortgage Fraud Scheme.

Foreclosed Homeowner Jailed On $1.5M Bond For Allegedly Torching Former Home In Blaze That Severely Injured First Responder

In Stuart, Florida, TC Palm reports:

• A judge Friday refused to lower the $1.5 million bond that's holding a Lake Park man accused of torching a home he lost to foreclosure and critically injuring a firefighter who fought the blaze.
  
  Joseph Edward Haas, 47, remained at the Martin County jail after a brief appearance in court to face charges of arson, grand theft and arson resulting in injury. "I didn't burn the house down intentionally," Haas said Thursday in handcuffs as Martin County sheriff's deputies took him into custody.
  
  Investigators say on Dec. 27, Haas went to his former home at 1151 S.W. Blue Water Way, doused it with gasoline and set it on fire. His motive, authorities have said, was to prevent anyone else from living in the western Martin County home he built that was taken by the bank in a foreclosure action.
  
  The blaze severely burned Martin County firefighter Jahwann McIntyre, who remains hospitalized, and injured two other firefighters.
  
  Chief Assistant State Prosecutor Tom Bakkedahl on Friday said given the extent of McIntyre's injuries, Haas could have faced a murder charge instead of arson. "But for the heroic efforts of two of this young man's co-workers, he was probably seconds away from losing his life and this guy (Haas) would be facing the death penalty today," Bakkedahl said. "That's how severe this case is, and we'll go forward from there."
  
  Haas' public defender on Friday argued that his client's bond was "excessive," but a judge declined to lower the amount.
  
  In court, Haas said he has lived in Martin County for nine years, but resides in Lake Park. He said he is unemployed, and his only assets are the $2.20 in his bank account and his Ford Ranger truck. Bakkedahl though, said authorities seized Haas' truck following his arrest.
  
  Sheriff's reports show Aaron Grosko, who lived at the torched home with Haas' daughter, told investigators Joseph Haas was upset the house was being lost in a foreclosure and that he would "burn his house down" before Haas let the bank or anyone else take it.
  
  Haas' former girlfriend April Finch on Friday told WPTV NewsChannel 5 she dated Haas for 8 months and they lived together at the house for months before their relationship soured. When she learned of the fire, she said her first thought was of Haas.
  
  "I thought of him, because he made that comment all of the time: 'If I can't have this house, nobody will,'" Finch told WPTV.

For the story, see Arson suspect remains jailed after judge leaves bond at $1.5 million.

County Seeks To Snatch Cleveland Resident's Mortgage-Free Home For Missing Payment Deadline On Back-Tax Installment Remittance By One Day

In Cleveland, Ohio, Newschannel 5 reports:

• Ronald Hasinski owns his Cleveland home free and clear, but confusion over a delinquent property tax bill has sent his home into foreclosure, and to a Feb. 11 sheriff's sale.
  
  Hasinski told NewsChannel5 he arranged a payment plan with the Cuyahoga County Treasure's Office to make up for the $5,800 he owes in back property taxes. But Hasinski said everything went wrong when he was just one day late on one of the $152 payments. A notice from the treasure's office said he would be losing his home. The notice sent to Hasinski included a bill, but did not include how much he was to pay to get current with his payments.
  
  "I'm just devastated. I'd cry but the tears haven't sunk in yet," said Hasinski. "I've put a lot of money into this house and now I'm told it's being sold to the highest bidder."
  
  Hansinki claims he contacted the treasure's office several times, but said he couldn't get any answers about the confusing tax bill, or how he could save his home. Hansinski called on the NewsChannel5 Troubleshooter Unit and Cleveland Councilwoman Dona Brady.
  
  Brady contacted the treasure's office about Hansinki's case, promising it would conduct a full investigation within the next 24 hours. "Why would he receive a bill that says don't pay anything and you're going into foreclosure? It doesn't make any sense," said Brady. "We do not want another foreclosed home but, more importantly, we don't want Mr. Hasinski out on the streets."

For more, see Cleveland man could lose home after being one day late on delinquent property tax payment (Councilwoman Dona Brady: tax bill was confusing).

Convicted Low-Level Rent Scammer Pinched Again For Allegedly Ripping Off Prospective Tenant Out Of Upfront Lease Deposit On Home Facing Foreclosure

In Tamarac, Florida, the South Florida Sun Sentinel reports:

• An elderly couple turned to Craigslist to find a room to rent for an adult handicapped daughter, and discovered a Tamarac residence that was being leased by Wendy Richland. They paid Richland a $50 check and art worth $325 as a deposit, the Broward Sheriff's Office says, and the tenant was to move in to the home on the 8500 block of Northwest 83rd Street on Dec. 3.
  
  But on Dec. 1, Richland, 57, who lived in Boca Raton and had cashed the check, told the couple the deal was off, the Broward Sheriff's Office says. She declined to return the cash and claimed the art was a gift.
  
  Broward Sheriff's Detective Monica Jean arrested Richland on Jan. 2, and charged her with larceny of less than $10,000 from a person 65 or older, and violation of probation. Jean hopes to hear from others who may have attempted to rent the property.
  
  Richland's attorneys from previous court cases could not be reached for comment. She has served brief prison terms for forgery and grand theft convictions, a Florida Department of Corrections spokeswoman said.
  
  In 2009, Jean arrested Richland and charged her with two counts of grand theft for taking rent deposits for the Tamarac property of $2,400 and $1,800 from two women.
  
  One of the victims found other tenants unpacking boxes before she could move in, and Richland told the second woman that she changed her mind and wasn't renting the house to her, according to complaint affidavits.
  
  In those cases, Richland received probation after pleading no contest, according to Broward County online court records.
  
  Richland's Tamarac property is in foreclosure, county records show. Jean asks anyone with information to call 954-720-2298.

Source: Tamarac landlord accused of cheating prospective tenants (Broward Sheriff's detective seeks other victims).

'Stay Out Of Idaho!' Says State Regulator To S. Florida Lawyer Peddling Participations In 'Mass Joinder' Lawsuit Against Lenders Alleging Deceptive Foreclosure, Lending Practices

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

• A North Palm Beach law firm was ordered by the State of Idaho to stop soliciting residents to join a foreclosure-related lawsuit that allegedly required them to pay thousands of dollars in up-front fees and monthly payments.
  
  The Residential Litigation Group was given a cease and desist order by the Idaho Department of Finance after an investigation that included a department employee posing as a prospective client. The company also has a complaint against it filed with the Florida Attorney General from a New Jersey resident who said he paid $1,000 after getting information from the group in the mail.
  
  The firm changed its name to the Hoffman Law Group in November, according to Florida Department of State records. Its managing partner, attorney Marc H. Hoffman, is under investigation by the Florida Bar for sending out misleading mailings. Hoffman could not be reached for comment Tuesday.
  
  In the Idaho order, the Residential Litigation Group is accused of violating the state’s Financial Fraud Prevention Act by sending “confusing, misleading, and deceptive” information to the public in documents that purport to be a “litigation notification” but are actually an advertisement.
  
  A website for the group says it is suing the nation’s biggest banks and lenders for fraudulent use of paperwork in foreclosures, deceptive mortgage modification practices and deceptive loan practices. A copy of a lawsuit with the names of hundreds of defendants filed in Kings County New York on Dec. 5 is posted on the website.
  
  When a representative from the Idaho Department of Finance called to ask about the lawsuit, she was told it would cost a retainer fee of $6,000 to join, which would be refunded after the lawsuit is settled, and a monthly fee of $450.

For the story, see Idaho orders North Palm Beach law firm to stop soliciting residents.

Ex-Michigan High Court Justice Cops Guilty Plea To Illegal 'Short Sale Shuffle' As Feds Drop Related Pending Forfeiture Snatch On Her Florida Home

In Ann Arbor, Michigan, The Detroit News reports:

• U.S. Attorney Barbara McQuade says her office will pursue prison time for former state Supreme Court Justice Diane Hathaway, who pleaded guilty Tuesday to a felony bank fraud charge stemming from personal real estate transactions.
  
  Whether U.S. District Court John Corbett O'Meara gives Hathaway jail time could depend on how much he determines she defrauded mortgage lender ING Direct by hiding assets and misleading bank officers to secure a financial hardship and unload a $1.5 million Grosse Pointe Park home for $850,000 on a short sale.

***

• Hathaway appeared Tuesday morning before O'Meara in his Ann Arbor courthouse just eight days after stepping down from the high court. [...] O'Meara set a May 28 sentencing date. Depending on how much the judge rules Hathaway defrauded her bank in a scheme to get a short sale, she'll pay up to $90,000 in restitution, according to her attorney, Steve Fishman.
  
  Federal prosecutors have accused Hathaway of concealing assets and transferring homes to stepchildren in a scheme to get mortgage lender ING Direct to forgive $600,000 owed on a $1.5 million Grosse Pointe Park home and unload the lakefront property in a November 2011 short sale.
  
  Outside the Ann Arbor courthouse, Hathaway attorney Steve Fishman could not explain why his client shuffled the homes around, resulting in the fraud. "It was dumb," Fishman told reporters. "There wasn't any reason for it. It made no sense."
  
  Prosecutors are letting Hathaway keep her posh second home in Florida she transferred to a stepchild in an effort to conceal her assets from the bank while applying for the short sale.
  
  Fishman said Tuesday he'll argue Hathaway and her husband, attorney Michael Kingsley, saved the bank $150,000 by negotiating a short sale of their home rather then letting it be sold at a foreclosure auction.
  
  But prosecutors have tripped up Hathaway on a fraud charge because she and Kingsley deeded the Windermere, Fla., home, valued at $664,000, to one of Kingsley's daughters while applying for the short sale — and then got the house back after selling the Grosse Pointe Park home.

***

• During the short sale process, in 2010 and 2011, Hathaway also acquired two other homes in Grosse Pointe Park on Windmill Pointe and Balfour Street and transferred them to her stepchildren. Hathaway's stepdaughter, Sarah Kingsley, transferred the Balfour Street back to Hathaway after the short sale of the home on Lakeview Court, public records show.

***

• Kingsley, whose name was on the Lakeview Court mortgage in question, was not charged and neither were his children who participated in the housing shuffle.
  
  "The government determined there is insufficient evidence to charge anyone else but Justice Hathaway," Assistant U.S. Attorney Daniel Lemisch. told the judge. [...] During the Detroit press conference, McQuade said Hathaway was the only person involved in the scheme who had "criminal intent."

***

• McQuade had sought to seize the Florida home Hathaway and Kingsley own that prosecutors allege was transferred to Kingsley's daughter, Kathryn Sterr, to hide the asset from ING Direct during the short sale application process. The U.S. Attorney's office is dropping the forfeiture case contingent upon the restitution being paid, McQuade said.
  
  Until the sentencing date, Hathaway is free on her own recognizance and able to travel to her Florida home. The judge gave her one guideline, though.
  
  "The defendant will not transfer ownership of any property unless authorized by the court," O'Meara said.

For more, see Michigan Supreme Court justice pleads guilty to bank fraud charge.

S. Florida County Official Calls For End To State Adverse Possession Law; Points To Recent Bogus Crackpot Claims On Temporarily Unoccupied Homes To Justify Changes

In Fort Lauderdale, Florida, the South Florida Sun Sentinel reports:

• The attempted takeover of a $2.5 million Boca Raton mansion using an obscure real estate law now has copycat cases — including one involving a $4.6 million oceanfront mansion complete with tennis court and pool.
  
  Broward County Property Appraiser Lori Parrish — whose office accepted three more filings for "adverse possession" Tuesday — said she's had enough.
  
  She's started asking the area's state legislators to strike the law from the books, once and for all. "It's not a 21st century law — they ought to abolish it," Parrish said, pointing out that it was passed when Florida was vast swaths of agricultural land that sometimes fell into disuse.

***

• Parrish says that in most cases — and Broward now has 22 of them — the filing is not worth the paper it's printed on, particularly in one case of a filing on a beach house that is not in foreclosure.
  
  "Why should someone take possession of a house that money isn't even owed on?" she said. "What this is doing is legitimizing breaking and entering."

***

• A Sun Sentinel investigation found that in Broward County in April, there were an estimated 8,000 dormant foreclosure cases in which there had been no movement for 120 days or more. In Palm Beach County at the same time, about 7,100 foreclosure actions showed no activity for a full year.
  
  But one of Broward's most recent adverse possession cases, at 1333 N. Atlantic Blvd., is not part of that backlog. It's for sale and it's empty.
  
  So someone named Tommie L. Milton Jr. filed an adverse possession form on the 4-bedroom oceanfront home that's listed for $4.6 million.
  
  Milton did not return a call seeking comment. But he was caught by police on the property on Friday, the day after he filed for adverse possession, according to Mila Schwartzreich, co-counsel for the property appraiser.
  
  Fort Lauderdale attorney Max Hagen, who represents the property owner, said he would have needed to file a civil suit to eject Milton — if he hadn't been caught. A security guard has since been posted at the home, Hagen said.
  
  For Property Appraiser Parrish, this case is another indication of just how absurd adverse possession is. "In 1876, it served a purpose it doesn't serve in 2013," said Parrish, who said her own neighborhood was bedeviled by a squatter. "Why should people have to spend money on asserting their property rights because of an antiquated law that doesn't belong on the books?"

For the story, see Broward Property Appraiser moves to repeal squatting law ("Loki Boy" copy cats bedevil Broward County).

L.A. Feds Indict Pair In Alleged Mortgage Elimination Scam Based On Sovereign Citizen Arguments

In Los Angeles, California, the Inland Valley Daily Bulletin reports:

• In at early morning raid at a Cello Drive home, FBI agents Wednesday arrested a Diamond Bar man in connection with a scheme that allegedly defrauded as many as 400 people who paid into a mortgage debt elimination scheme, officials said.
  
  Jude Lopez was taken into custody without incident, FBI spokeswoman Laura Eimiller said. [...] A woman, identified as Marcela Gonzalez, was also indicted by authorities in connection with the mortgage debt elimination scheme. She is suspected of six counts of mail fraud, Eimiller said.
  
  "Investigators believe approximately 400 clients were defrauded of approximately $5 million over approximately two years," Eimiller said. "(The) defendants allegedly pitched a `sovereign citizen' argument to homeowners, suggesting that the original liens were invalid."

***

• Court documents indicate the FBI, the Montebello Police Department and the Los Angeles Police Department were involved in the investigation. The U.S. Attorney's Office asked that Lopez be held as a flight risk, according to court documents.
  
  Prosecutors allege that Lopez, working on behalf of a company identified as Crown Point, filed bankruptcy paperwork for Crown Point clients. The paperwork was intended to delay foreclosure proceedings, officials said.
  
  "From at least in or about September 2010, through in or about May 2012, defendant Lopez who was not a lawyer prepared and filed, and caused to be prepared and filed, legal papers including ... bankruptcy petitions on behalf of clients in order to delay foreclosure and eviction actions."
  
  The complaints alleges that in some cases Lopez filed paperwork without the client's knowledge. Some of the petitions contained forged signatures, according to court documents.

For the story, see FBI arrests Diamond Bar man in connection with mortgage debt elimination scheme.