Lender Jammed In Foreclosure Attempt; Failed To Prove Legal Standing, Says Colorado Judge

In Douglas County, Colorado, the Douglas County News Press reports on local couple Louis and Margaret Sadler, who are assiting their daughter fight a foreclosure action that threatens the loss of her home.

• The [...] couple, who hired Castle Rock attorney Michael Robinson to handle the routine foreclosure, saw a Douglas County district court judge on June 19 put a stop to the foreclosure sale when the lender could not prove it was a party of interest in the case.

• The lender's failure to prove its interest is part of an industry practice Robinson says could impact victims of foreclosure across the state. "This is a case of first impression in Colorado," Robinson said. "This is going to wake people up and make them realize 'I don't have to take this, I can fight back.'" The fight began when Robinson embarked on his research in the time he had to respond to the original foreclosure action. His search of the publicly-filed documents disclosed something was amiss.

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• During the June 19 trial, Lorainna Diaz, the chief of mortgage litigation for Countrywide Home Loans, was unable to identify the person whose stamped signature endorsed the note or when the note was endorsed to the Bank of New York. Diaz testified by phone from the company's Fort Worth, Texas, office but her efforts did not pay off for the Bank of New York. "I don't find [Diaz] to be credible at all," said Douglas County district court Judge Vincent White when he found in Sadler's favor. "She couldn't establish when [the transfer] occurred or that it was legitimate. I would expect someone in her position to be able to say when it was transferred and how [Sadler] was noticed."

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• For those who find themselves in similar situations in Colorado, White's decision could open the door to great possibilities, Robinson said. "So far the problem has been that everybody surrenders [in the face of foreclosure]," Robinson said. "The message here is that people aren't going to roll over, they're going to fight."

• Robinson and his co-counsel hope others join the fight and have built a Web site, www.blockcoloradoforeclosure.com, to provide a resource for those facing foreclosure in Colorado.

In dismissing the court order authorizing the foreclosure sale, the judge indicated that the lender can re-file the case if they want, presumably if it is able to get its paperwork straight.

For the whole story, see The foreclosure fight is on.

For other posts that reference the failure of some mortgage lenders and their attorneys to file the required loan documents when starting foreclosures, Go Here, Go Here, and Go Here.

Court Approves Foreclosure Rescue Scam Settlement Between Massachusetts, Ten Lenders; Case Involved State AG Claims Of Equitable Mortgage, Usury, Etc.

From the Office of the Massachusetts Attorney General:

• The U.S. Bankruptcy Court has approved a settlement between Attorney General Martha Coakley’s Office and 10 mortgage lenders and servicers that funded or serviced loans which facilitated fraudulent foreclosure rescue transactions by Brockton attorney Alec Sohmer. The Settlement Agreement with the lenders, entered last week by Judge Joan Feeney, was reached by the Attorney General’s Office and the Chapter 7 trustee in Sohmher’s bankruptcy case. The Settlement impacts 26 residential properties that are part of Sohmer’s bankruptcy case and is designed to return homeowners to their financial position before Sohmer arranged foreclosure rescue transactions that stripped their home equity and required payment of Sohmer’s fees and high settlement costs. The settlement will also provide an opportunity for Sohmer’s victims to reacquire the legal title to their homes.

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• Under the terms of the settlement, the lenders and servicers will provide restitution to the homeowners victimized by Sohmer’s fraudulent scheme by reducing the outstanding mortgage liens on the homeowner’s properties, and in many instances allowing the homeowners to apply to assume the loans. As a result of the foreclosure rescue scheme, 26 homeowners had transferred the titles of their homes to Sohmer. The original homeowners can now reclaim their property by paying a reduced mortgage obligation instead of the inflated mortgage loan arranged by Sohmer, and by refinancing the loans.

• The mortgage lien will be reduced to the lower of the actual amount paid for prior mortgage loans on the property, subtracting any beneficial payments to the homeowners; or 80% of the current value of the properties. In total, across 26 properties, the settlement will provide approximately $1.8 million in reduced mortgage obligations.

For more, see Massachusetts AG press release: Bankruptcy Court Approves Settlement Between Attorney General’s Office and Ten Mortgage Lenders and Servicers Involved in Foreclosure Rescue Transactions.

For earlier posts on this case, see:

• Foreclosure Rescue Sale Leaseback Deals Are Usurious Equitable Mortgages, Says Massachusetts AG's Civil Lawsuit, or
• Go here for all earlier posts.

In related subsequent bankruptcy litigation, see Commonwealth of Massachusetts v. Sohmer.

Editorial Note:

As best as I can figure it, the $1.8 million hit that the lenders are taking represents the approximate home equity that the foreclosure rescue operator ripped off from the homeowners. Further, the settlement in this case appears to be a good illustration of how equity stripping, foreclosure rescue lawsuits in which a claim of equitable mortgage is made should be resolved when the financially strapped homeowners sign over the title to their homes but remain in possession thereof pursuant to some form of lease/buyback arrangement.

The homeowner's continued possession of the home after signing over the deed generally constitutes either actual or constructive notice to the foreclosure rescue operator's (or straw buyer's) mortgage lender of the homeowner's rights in the home under the equitable mortgage doctrine. This would be the case even if the mortgage lender had no actual knowledge of the arrangement between the foreclosure rescue operator and the homeowner (as any experienced real estate attorney will advise, one can be deemed to have "actual or constructive notice" of another's rights in real estate without actually having knowledge of the existence of those rights - see The Bona Fide Purchaser for Value of a Legal Estate Without Notice for a beginner's guide to actual and constructive notice, and the bona fide purchaser doctrine).

The effect, as illustrated in the Massachusetts AG's settlement, is that it is the lender, not the homeowner, that gets the screwing over in the deal. Of course, the lender will then have a cause of action against the foreclosure rescue operator, any straw buyer, possibly the title insurance underwriter who issued any title policy in the transaction, and anyone else who participated in the fraud for any damages it suffered.

Ohio Couple In Foreclosure Seek Constitutional Right To Free Court Appointed Attorney

In Cincinnati, Ohio, The Enquirer reports:

• A Westwood couple faced with losing their home of 22 years through foreclosure has asked the Ohio Supreme Court to declare that they have a constitutional right to a court-appointed lawyer to represent them.

• The petition came after Hamilton County Common Pleas Judge Beth A. Myers ruled Tuesday that William and Mary Hill were not entitled to a free lawyer because the case involved property rights, not individual liberty.

• Attorney Robert B. Newman, who represents the Hills, argues that too many homeowners in foreclosure lose hope and abandon their homes, even if they have valid defenses, because they can't afford a lawyer. The Legal Aid Society of Southwest Ohio has supported his argument, saying its lawyers are overburdened with foreclosure cases and have had to turn away homeowners.

Source: Homeowners demand lawyer (if link expires, try here).

119K+ Collection Cases Clog Chicago Courts; Sloppy Practices, "Zombie Debt" Hurting Consumers

In Chicago, Illinois, a story in the Chicago Tribune makes apparent that mortgage foreclosures are not the only cases that are clogging the court system:

• Cook County Circuit Court has been turned into a frenetic debt collections machine, a reflection of easy credit gone sour and a collections industry determined to get paid. More than 119,000 civil lawsuits against alleged debtors are clogging courtrooms, and at least half will result in judgments that debt collectors will use to dock wages, seize bank accounts and file liens against homes, compounding the woes of troubled borrowers.

• But because debt collectors operate on volume—pushing through lawsuits based on little more than lists of names, addresses and alleged amounts due—there are also plenty of instances of mistaken identities, cases where debts are alleged when the bills have been paid and even situations where people have fallen behind and tried to work out repayments only to be hauled in to court. "The system is out of control," said Michelle Weinberg, a supervisory attorney at the Legal Assistance Foundation of Metropolitan Chicago.

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• A new breed of collector has transformed the industry in the last decade, purchasing distressed debt from credit card issuers, retailers and other consumer lenders. Debt buyers usually only pay pennies on the dollar for packages of unpaid bills that include limited electronic information about the borrowers.

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• Consumer groups say the high number of default judgments can mask flaws with the lawsuits. Credit agreements and payment histories are often not included when suits are filed. Instead, debt collectors file an affidavit attesting to the validity of the debt, and it's not unusual for that affidavit to be erroneous, said Bob Hobbs, deputy director of the National Consumer Law Center. [...] In New York, an Urban Justice Center study in 2006 found that in 99 percent of a sampling of default judgments that the evidence used to obtain the judgment did not meet the state's legal standards.

The experience of one consumer victimized by the sloppy practices of a purported creditor and the creditor's attorney was reportedly described as "a perfect example of zombie debt. You pay it, and it comes back to life."

For more, see Debt collectors pushing to get their day in court (More aggressive strategies fill court dockets, result in mistaken identities) (if link expires, try here).

Go here for other posts on zombie debt.

NYC Foreclosure Rescue Ringleader, Mortgage Broker Cop Plea In Equity Stripping Scam Involving $200M+ In Fraudulently Obtained Loans

In New York City, The Associated Press reports:

• One company billed itself as a white knight that could rescue desperate homeowners from foreclosure. The other passed itself off as an honest brokerage that helped wealthy New Yorkers get mortgages to buy $1 million apartments. In reality, both firms dealt primarily in fraud, according to prosecutors.

• Two Brooklyn mortgage specialists pleaded guilty to federal conspiracy charges this week in a pair of loosely related cases that cost banks millions of dollars and led to some people losing their homes.

• Maurice McDowall, the owner of a "foreclosure rescue" company called Lost and Found Recovery, copped to an indictment accusing his firm of persuading scores of struggling families to enroll in a program to "save" their homes by temporarily signing them away to someone else. Mortgage broker Aleksander Lipkin admitted criminal wrongdoing in both that case and a separate fraud in which his firm, Lending Universe, used bogus paperwork to arrange more than $200 million in loans they knew would probably never be repaid.

For more, see 2 plead guilty in NY mortgage frauds targeting homeowners.

See also:

• Indictment - U.S. vs. McDowall, et al.,
• New York Daily News: Two found guilty in mortgage scam and face 30 years in prison,
• U.S. Attorney Press Release: Leader of Foreclosure Rescue Scheme and Mortgage Broker Plead Guilty to Multimillion Mortgage Fraud.

Go here for other posts on foreclosure rescue operator Maurice McDowall.

Go here for other criminal prosecutions of foreclosure rescue operators.

For more on equity stripping scams, generally, see DREAMS FORECLOSED: The Rampant Theft of Americans' Homes Through Equity-stripping Foreclosure 'Rescue' Scams (4.61 MB approx.).

South Florida Attorney Seeks To Undo Lousy Loans; Files 25 Federal Suits On Behalf Of Homeowners Alleging Fraud, Violations Of Lending Laws

In South Florida, The Miami Herald reports:

• Some South Florida borrowers who are in default on their home loans aren't waiting around for their lender to begin foreclosure. They have beaten their lender to the courthouse by filing lawsuits that allege the institutions committed fraud and violated federal lending laws by overstating the borrowers' incomes to qualify them for loans, changing the loan terms just before closing, and failing to disclose the loan costs.

• ''These [borrowers] are basically sheep among the wolves,'' said Frank J. Ingrassia, a Margate lawyer who last week filed about 25 lawsuits on behalf of the borrowers against various lenders in U.S. District Court in Miami and Fort Lauderdale.

• The suits mark the latest salvo against the subprime lending industry, which consumer advocates contend recklessly extended loans to borrowers and fed a buying frenzy that led to the real-estate bust.

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• Legal Services of Greater Miami is taking a similar tack -- alleging lenders committed fraud -- in defending homeowners in some foreclosure cases, said Carolina Lombardi, a senior attorney for the agency.

For more, see Troubled borrowers sue mortgage lenders (Some South Florida homeowners have sued their mortgage lenders, alleging the institutions committed fraud in making loans that borrowers couldn't afford to pay) (if link expires, try here or try here).

For other posts on homeowners using Federal & state consumer protection statutes to try and undo bad mortgage loans, Go Here and Go Here. undo mortgage loans TILA batallion

More On Alleged Metropolitan Money Store Equity Stripping, Foreclosure Rescue Scam; Victims Speak

In Maryland, The Baltimore Sun features a story of two area homeowners who were victimized in the alleged Metropolitan Money Store equity stripping scam in which Federal prosecutors indicted eight suspects this week. The alleged scam resulted in over $35 million in fraudulently obtained mortgages and over $10 million in stolen home equity, say authorities.

• "They hurt a lot of people," said [homeowner Nadine] Bostic, who is a plaintiff in a class-action civil suit against some of the federal defendants. "I never thought I'd ever say I wanted someone to be in jail, but I do. They need to be put underneath the jail. Not on top, not inside - underneath." [...] "When I was told they [arrested the alleged perpetrators], I didn't know if I should jump for joy or what," she said. "It was a strange feeling. I never thought anyone was going to do anything."

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• With her father serving in Iraq and money tight at home, [another victim, Jeanette] Meadows, 19, sounded less pleased about the arrests than weary of the whole affair yesterday as she described how her family became a target of the alleged mortgage schemers."They're backstabbers who can't be trusted," Meadows said from her home on Glenarm Road in Northeast Baltimore, a property that has avoided foreclosure only because a lawyer for the family last month asked a Circuit Court judge to invoke a federal law [the Servicemembers Civil Relief Act] that exempts active-duty military personnel from being forced from their homes.

For more, see Relief, anger follow arrests in mortgage loan scheme (Homeowners express emotions in alleged fraud that victimized them).

To read the Federal indictment of the alleged perpetrators, see U.S. v. JoyJackson, et al. (available online courtesy of the consumer protection attorneys at The Holland Law Firm, P.C. and the Legg Law Firm).

For more on the class action lawsuit filed against Metropolitam Money Store, go here to read the class action complaint; and for updates, check with the Metropolitan Money Store Class Action website.

Go here and go here for other posts on the alleged Metropolitan Money Store foreclosure rescue scam.

Go here for posts on the Servicemembers Civil Relief Act. joyjackson