FTC, Mortgage Servicer Modify Settlement Agreement

The Federal Trade Commission reports:

• "The Federal Trade Commission [Thursday] announced that it has reached an agreement with [Select Portfolio Servicing, Inc. - the former Fairbanks Capital Corp.] to modify certain terms of a 2003 court settlement, providing substantial benefits to consumers beyond those in the original settlement, including account adjustments and reimbursements or refunds of fees paid in certain circumstances."

The settlement relates to charges brought by the FTC several years ago of abusive and predatory mortgage servicing practices allegedly engaged in by the former Fairbanks Capital Corp.

For more, see FTC Press Release - FTC, Subprime Mortgage Servicer Agree to Modified Settlement (Agreement With Former Fairbanks Capital Provides Additional Consumer Benefits).

For a copy of the settlement, see U.S. v. Select Portfolio Services - Modified Stipulated Final Judgment And Order (12.4 MB, available online courtesy of the FTC).

Representing Homeowners In Foreclosure Rescue Deals

For those of you in the practice of law, as well as those who work with attorneys (ie. paralegals, law clerks, private investigators doing class action work, law students, and others) who are looking for a clear, cogent reference dealing with the legal issues involved in representing victims of foreclosure rescue deals, you might want to check out the following two works that I found floating around out on the Internet.

1) The first source of reference is identified as Chapter 11 - Foreclosure Rescue Scams from National Consumer Law Center's Foreclosures Manual.

2) The second source of reference is also titled Foreclosure Rescue Scams, a 77-page work appearing on the website of the Office of the Washington State Attorney General.

This work is broken up into four parts:

1. Anatomy of a Foreclosure Rescue Scam
2. Legal Theories - Equity & Common Law
3. Legal Theories - Statutory
4. Representing Victims of Foreclosure Rescue Scams

In addition, there is an appendix, which is 6+ page Initial Client Interview Checklist, containing questions to be asked at an intial meeting of a client who has become entangled in a foreclosure rescue situation.

Contained in the work is a discussion of the following equitable and common law theories: (a) equitable mortgage, (b) unconscionable transaction, (c) fraud & constructive trust, (d) breach of fiduciary duty, (e) quiet title & partition, (f) breach of contract & promissory estoppel, and (g) agency, vicarious liability, and bona fide purchaser.

It also contains a discussion of potentially applicable Federal statutes (Truth In Lending Act - TILA, Real Estate Settlement Procedures Act - RESPA, and the Racketeer Influenced and Corrupt Organizations Act - RICO); as well as the applicable state statutes of Washington State (while it may not seem to some that the discussion of the Washington State statutes would be of much use to legal professionals outside the state of Washington, I would submit that most (if not all) states have their own version of some of the Washington statutes discussed in the work - ie. usury, state consumer protection / unfair and deceptive trade practices statutes, statutes regulating the conduct of mortgage brokers, equity skimming, civil rights; from this point of view, discussion of the state statutes in Washington may give some perspective to those in other states when determining what state statutes are applicable in jurisdictions outside Washington).

Procedural issues are also discussed, as well as the nature of the documents essential to the case that need to be obtained during the discovery stage of the litigation.

For the MS Word version, see Foreclosure Rescue Scams - doc.; or for the html version, see Foreclosure Rescue Scams - html.

Mortgage Servicer Wins Again On Right To Represent Lenders In Foreclosure Actions

Law.com reports:

• "A federal judge has dismissed a proposed class action lawsuit filed by homeowners who cast doubt on the legitimacy of the nation's leading mortgage registration firm to represent lenders in foreclosures. U.S. District Judge Timothy J. Corrigan in Jacksonville, Fla., ruled that Mortgage Electronic Registration Systems did not misrepresent itself or hide its role as a nominee for mortgage lenders."

For more, see Federal Judge Rejects Homeowners' Lawsuit Against Major Mortgage Registry.

Foreclosure Rescue Lawsuit Reads Like A Federal Criminal Indictment

In reading through the recent class action lawsuit filed on behalf of three Maryland homeowners against Metropolitan Money Store and a number of others, the complaint reads much like a criminal indictment would read that was handed up by a Federal grand jury to a Federal prosecutor.

For example:

1) reference is made to a "Foreclosure Reversal Program," which was the name that the defendants allegedly gave to the scheme they are accused of using to cheat financially strapped homeowners out of their home equity. The lawsuit describes this Foreclosure Reversal Program as "a criminal enterprise which was made up of an association in fact consisting of [several of the named defendants],"

2) the complaint accuses the defendants of "hav[ing] engaged in willful, systemic and widespread violations of the Federal Racketeer Influenced And Corrupt Organizations Act ("RICO"), ...",

3) accusations are made of payments of "illegal kickbacks and unearned fees", preparation of "false HUD-1s" by the two named title insurance agency defendants, and that the homeowners were "robbed blind",

4) the complaint alleges that "The systematic false representations on HUD-1 Settlement Statements in the transactions ... were designed to conceal the illegalities of the transactions,..."

5) allegations are made of conduct constituting wire fraud and mail fraud, and that "the false HUD-1 Settlement statements were utilized to launder the money being paid to the RICO defendants for the purpose of evading taxes ..."

6) allegations are made of charging and collecting interest and compensation on the "Foreclosure Reversal Program" loans in an amount that violated state law.The defendants in this case include two title insurance agencies which, among other things, allegedly acted as the settlement/closing agents in the foreclosure rescue transactions described in the lawsuit, and two title insurers, for their alleged failure to properly supervise the title insurance agents who issued the title policies and handled the closings.

The defendants in this case are: Metropolitan Money Store Corp.; Fordham and Fordham Investment Group, Ltd.; RTE Title & Escrow, LLC; Sussex Title, LLC - formerly known as Cap Title, LLC; Diane Linda Jones; Leticia Nicholls; Jamie Armand Clark; Joy Jenis Jackson; Kurt Fordham; Alexander Jamil Chaudhry; Valeria Tomlin; Jennifer McCall; Southern Title Insurance Corp.; Chicago Title Insurance Company; and fifty unknown individuals that are currently referred to in the lawsuit as John Doe #1 through John Doe # 50, inclusive.

For a copy of the complaint, see Proctor, et al. v. Metropolitan Money Store, et al. (no exhibits).

You can also go here for direct links to the lawsuit (76 pages - $2.40) and the 28 accompanying exhibits (50+ pages - $.08/page) on the U.S. Courts' PACER website. PACER registration required.

Go here for other posts on the Maryland foreclosure rescue class action, which now also covers those homeowners in Washington, D.C. and Virginia who were allegedly ripped off by the named defendants.

Michigan Couple Loses Home In Equity Stripping Scam

Reprinted from The Home Equity Theft Reporter - 7-26-07

In Royal Oak, Michigan, The Daily Tribune reports that a local couple face eviction from their home as a result of a bank foreclosure on their home.

Reportedly, their trouble started in 2004 when they sought to obtain a $10,300 home equity loan to pay off back taxes. According to the story, they were referred to Hispanic Financial Group, Inc., and its agent, Gustavo Aguilar, in April 2004, who not only paid the outstanding taxes but also slipped a purchase agreement into the paperwork and recorded an affidavit of interest against the property for $82,000. When all the dust settled, the couple say they unknowingly sold their house to the lender's accomplice without receiving a penny from the sale, and the lender walked away with a forged check for $33,000, cashed at LaSalle Bank. (LaSalle Bank subsequently repaid the money to the homeowner.) The accomplice ultimately let the house go into foreclosure and it was acquired in foreclosure by U.S. Bank.

The homeowners tried to get their house back in Oakland County Circuit Court. They claimed the mortgage was defective because it was obtained through a fraudulent transaction so U.S. Bank wasn't a bona fide purchaser. However, the judge ruled in April there wasn't enough evidence to support the homewowners' claims and U.S. Bank was ruled to be the rightful owner of the property. For more, see Couple faces eviction again (They lack funds to buy back house lost in shady deal).

See story updates:

• Couple scraping up money to repurchase house
• Vet group helps scammed couple (One-time homeowners face eviction unless they buy back their house)
• Home may be cost of misplaced trust (The Detroit News)

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This story, appearing in a general circulation newspaper, is understandably skimpy on the details of the litigation involving the homeowner's attempt to void the mortgage on the basis that the lender wasn't a bona fide purchaser for value, without notice. Generally, actual, open and visible occupation of the premises, whether known to the purchaser (or subsequent encumbrancer) or not, is deemed sufficient notice to the purchaser of the rights and equities of such occupant. I think it reasonable to infer from what was reported in the media story that the homeowner's possession, both before and after they were defrauded, was actual, open and visible. Possibly, they weren't able to sufficiently prove the fraud itself, which may have been the reason they didn't prevail in voiding the mortgage (or maybe, it could also be that the judge just flat out ruled incorrectly, and the homeowners don't have the money to appeal; based on the subsequent media reports, their main concern appears to be to scrape up the cash to buy back the home from the bank, not pursue further litigation). In any event, it appears that the homeowners' attorney had the right idea in at least trying to void mortgage on the basis that the bank providing the mortgage in the equity stripping transaction wasn't an innocent purchaser without notice.

For an example of a recent case (involving a homeowner asserting a claim of equitable mortgage in the context of a foreclosure rescue, sale leaseback deal) where the homeowner had to rely on an appellate court to reverse an incorrect decision of a lower court, see Minalla v. Equinamics Corp., (Fla. App. Ct., 3rd Dist. March 21, 2007) (Court decision made available online courtesy of the Florida Third District Court of Appeal). This case was previously reported in the companion blog to this blog, The Home Equity Theft Reporter (see Florida Court Rules That "Foreclosure Rescue Eviction" Not A Landlord-Tenant Matter).

Go here for other posts on this blog that references the issue of "bona fide purchaser."