Saturday, August 30, 2008

Foreclosure Rescue "Federal Land Grant" Scams Flooding San Diego DA's Office

In San Diego, California, North County Times reports:

  • Two months ago, the district attorney's office busted foreclosure consultants based in Carlsbad who offered a "federal land grant" system that offered to save homeowners from foreclosure, he said. Authorities said the program was useless and bilked struggling homeowners for fees as high as $10,000, plus monthly rent. Similar land grant scams are still active throughout the county, [economic crimes division chief Michael] Groch said, flooding the office with cases.

Source: Fraud cases surpass 2007 numbers, DA says (Land grant scams targeting owners facing foreclosures still active, authorities said).

Friday, August 29, 2008

Controversy Over New Washington Law Regulating Foreclosure Rescue Deals Has State AG, Lawmaker Pointing Fingers

In Seattle, Washington, Seattle Weekly reports:

  • Since the [Washington State] Distressed Property Law took effect on June 12, it has facilitated zero lawsuits but much finger-pointing. The law, designed to quash nefarious foreclosure-rescue schemes, has realtors uncomfortable because, they say, it burdens them with undue liability. Meanwhile, Attorney General Rob McKenna, who once declared ownership of the bill, now disavows it, instead siding with the realtors (see "Home Flipper," SW, July 23).


  • [Sen. Brian Weinstein (D-Mercer Island), one of the bill's sponsors] claims the attorney general's office was involved in every phase of crafting the final law.

For more, see McKenna Called Out on Controversial Foreclosure Bill (The attorney general says he wasn’t part of the bill’s changes. Rep. Weinstein begs to differ).

For tutorials and other information on the new law regulating foreclosure rescue transactions in Washington State, see What You Need To Know About Washington State's New Distressed Property Law HB2791 (available online courtesy of the Washington Association of REALTORS®).

Thursday, August 28, 2008

New Law Protects Hawaii Homeowners From Foreclosure Rescue Scams

In Honolulu, Hawaii, Pacific Business News reports:

  • The Hawaii Bankers Association is reminding consumers that the Hawaii Mortgage Rescue Fraud Prevention Act, signed into law by Gov. Linda Lingle in June, protects them from people who prey on homeowners facing property foreclosures and liens. “Mortgage rescuers,” or distressed-property consultants, charge high fees, often do minimal work and employ deceptive tactics that sometimes force homeowners to deed their properties to the mortgage rescuer, according to the association. The new law requires consultants to provide homeowners with a written contract detailing their services. It also gives homeowners the right to cancel at any time before services are performed.

For more, see Hawaii homeowners are protected from fraudulent mortgage rescuers.

For the perspective of a Hawaii real estate agent, who believes the new law is written in a way that may impede real estate salespeople in the legitimate conduct of arranging short sales for homeowners pursuant to standard listing agreements, see Hawaii Reporter: Mortgage Rescue Fraud Prevention -The Unintended Consequences of Hawaii's New Act 137.

Wednesday, August 27, 2008

Monterey DA Charges Three In Alleged Upfront Fee Foreclosure Rescue, Refinance Scam

In Monterey County, California, The Salinas Californian reports:

  • [T]he Monterey County District Attorney's Real Estate Prosecution Unit has filed multiple felony charges alleging that three suspects targeted and defrauded financially distressed homeowners through a Monterey County “foreclosure rescue” scam between Feb. 10 and June 15 of this year. The complaint charges Monterey County residents Maria de Lourdes Ponce and Fabian Olivarez Casillas and Santa Cruz County resident Melissa Garcia with criminal conspiracy.(1)


  • The suspects allegedly promised that they could negotiate with lenders to either lower monthly mortgage payments or refinance home mortgages and that such services required an advance fee of as much as $2,800.(2) Clients were assured that the advance fee was a “loan processing charge” and “fully refundable” if the loan negotiation failed.


  • The criminal investigation commenced on June 6, after the Gonzales Police Department received a report from an alleged victim of the foreclosure rescue scam. By July 17, the Gonzales Police Department had obtained statements from more than 35 victims and additional witnesses and executed a search warrant on Maria de Lourdes Ponce’s home.

For more, see DA charges 3 in Monterey County foreclosure scams; more than 30 victims involved.

See also, KSBW-TV Channel 8: Gonzales Woman Arrested For Mortgage Fraud (Police: Woman Charged Homeowners Thousands) (read story) (watch video).

(1) According to the story, Ponce, who was arrested by Gonzales Police Department on Aug. 15, faces 11 other felony counts, including residential burglary and elder abuse, 9 counts of grand theft, and 3 misdemeanor counts. Garcia is currently in custody in Santa Cruz County, where she faces prosecution on charges of forgery, elder abuse and multiple counts of felony grand theft in a similar foreclosure fraud scheme. A warrant has been issued for the arrest of Fabian Casillas.

(2) Collecting upfront fees in California is prohibited under Section 2945.4(a) of the California Civil Code.

Tuesday, August 26, 2008

Two Charged In Alleged Foreclosure Rescue Scam Involving $4M+ In Fraudulently Obtained Loans, Say Minnesota Feds

In Minneapolis, Minnesota, the Minneapolis Star Tribune reports:

  • An Associated Bank employee and a real estate company owner from Minnetonka were charged Wednesday by a federal grand jury in a conspiracy to defraud the bank on at least 21 loans totaling more than $4 million. Eric Richard Krahnke, 50, of Ramsey, and Michael Ian Striker, 55, of Minnetonka, jointly face one count of conspiracy and 21 counts of bank fraud. Each man also faces one of two separate counts of money laundering related to the alleged conspiracy.


  • Between March and October 2003, the indictment says, Striker submitted 21 loan applications through Krahnke that contained false or misleading information; the applications overstated his and U.S. Equities' finances. Striker also allegedly submitted inflated appraisals to justify loan amounts exceeding the true market value of the properties.

According to the indictment:

  • In the case of many of these Loans, the properties were not vacant rehab properties [as was represented to the lender], but rather were homes that financially-distressed individual homeowners were were still living in. The homeowners had conveyed their title to Striker, or businesses that Striker was working with, under a contractual agreement whereby they re-purchased the residence on a contract for deed. At the same time these homeowners thought that Striker was helping them to stay in their homes, Striker was falsely representing to the bank an intention to rehab and re-sell these properties.(1)

For more, see:

(1) Indictment, paragraph 7(g).

Monday, August 25, 2008

Breathing Life Into A Time-Barred Truth In Lending Act Claim

Earlier this year, an article in the law firm Stroock, Stroock & Lavan's Subprime Task Force Special Bulletin(1) contained a discussion on the 2008 California Federal Court decision in Monaco v. Bear Stearns Residential Mortgage Corp.(2) which, it appears to me, illustrates a way how, in California (as well as any other state having a state law similar to the California statute at issue in this case), claims for damages on account of conduct that constitute violations of the Federal Truth In Lending Act ("TILA") can be pursued even if the one-year TILA statute of limitations has expired. A few excerpts from the article:

  • In Monaco, a federal court in California found that standard option-ARM loan documents are “ambiguous,” potentially subjecting the lender to liability for trying to enforce the loan’s terms. Making matters more difficult for the lender, the court further held that the lender’s alleged violation of the federal Truth In Lending Act (“TILA”) could create liability under California’s Unfair Competition Law (“UCL”), which provides for greater penalties than allowed under TILA, even though the borrower’s TILA claim was barred by the statute of limitations.
  • Plaintiffs seek to rescind their loans by reason of alleged violations of TILA, including failure to disclose the actual interest rate and negative amortization, and, using the alleged TILA violations as a predicate, demand damages and restitution under California’s UCL.
  • Bear Stearns moved to dismiss the TILA claims on the grounds that plaintiffs were not entitled to have their loans rescinded because the option-ARMs were refinancings of prior loans and because TILA’s one-year statute of limitations had expired. Second, defendants moved to dismiss the UCL claims on the grounds that TILA preempts California’s UCL and will not permit plaintiffs to win damages and penalties not permitted under TILA.
  • Although the California court agreed that plaintiffs could not use TILA to rescind their loans and the TILA claim was barred by the statute of limitations, it nevertheless rejected defendants’ preemption argument:
  • A State law is inconsistent with TILA if it requires a creditor to make disclosures or take actions that contradict the requirements of the Federal law. Here, Plaintiffs’ second cause of action under the UCL is based solely on Defendants’ alleged TILA violations. Nowhere do Plaintiffs suggest that Defendants failed to make certain disclosures or take certain actions not encompassed by TILA. Plaintiffs invoke the UCL solely for the additional remedies offered thereunder. Additional penalties are not inconsistent with TILA, but merely provide greater protection to consumers. (Monaco, page 7, at lines 9 through 17).
  • Thus, the UCL’s longer statute of limitations enabled the Monaco plaintiffs to pursue their otherwise time-barred TILA claim and to obtain penalties that would not be permitted under TILA.(3)
For more, see Courts Act to Protect Borrowers on Option-ARM and Subprime Loans.

For the court decision, see Monaco v. Bear Stearns Residential Mortgage Corp., 554 F. Supp. 2d 1034 (C.D. Cal. 2008).

For those of you who are interested, the article also contains a discussion of another pro-borrower decision referred to in this blog earlier this year, the New York decision in LaSalle Bank, N.A. v Shearon, No. 100255/2007 (Sup. Ct. Richmond County, Jan. 28, 2008).

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

(1) By Julia B. Strickland, a Partner in the Class Action/Financial Services Litigation Practice Group of Stroock & Stroock & Lavan LLP, and Curtis C. Mechling, a Partner in Stroock’s Litigation Practice Group, both of whom are members of Stroock’s Subprime Task Force.

(2) No. CV 07-05607 SJO (CTx) (U.S.D.C. Central District of California, Jan. 28, 2008).

Sunday, August 24, 2008

Foreclosure Network of New York City Formed By Local Lawyer Groups In Support Of The Cause Of Financially Strapped Homeowners

In New York City, the New York Law Journal reports:

  • A trio of bar groups yesterday announced the formation of the Bar Association Foreclosure Network of New York City, a cooperative pro bono effort by lawyers in three boroughs. The network will address a "citywide crisis" in mortgage foreclosures by providing a central resource for information and training in the cause of helping homeowners, according to Jeannie Costello, executive director of the Brooklyn Bar Association's Volunteer Lawyers Project. The New York City Association Justice Center and the Queens County Bar Association are the other participants. The network is an outgrowth of a city bar project in May in conjunction with the Federal Reserve Bank of New York, in which some 125 lawyers were recruited to counsel New Yorkers facing loss of their homes due to the subprime mortgage crisis.

Source: NYC Bar Groups Band Together for Pro Bono Effort.

See also, Brooklyn Daily Eagle: Brooklyn Bar and City Lawyers Create Network For Foreclosure Flood.