Saturday, January 31, 2009

L.A. Mayor, State Real Estate Commisioner, Others Caution Public On Loan Modification Fraud; "Scam Peddler" Sightings Up Sharply

In Los Angeles, California, the Los Angeles Times reports:

  • Alarmed by a huge increase in swindlers trying to take advantage of families whose homes are in foreclosure, Mayor Antonio Villaraigosa and a host of bankers, legal aid lawyers and law enforcement officials [Monday] called on the public to beware of people peddling loan modification scams.


  • From the ubiquitous orange signs on freeway off-ramps that blare “Modify Your Payment” to men impersonating bank executives going door to door, homeowners in trouble are being targeted relentlessly.

  • Jeff Davi, commissioner of the California Department of Real Estate, said his department has had to “shift resources” to keep up with the scammers. His office has 292 open investigations and expects to begin filing cases at a rapid rate, he said.

For more , see L.A. officials warn of foreclosure scams.

Iowa AG Issues Loan Modification / Foreclosure Rescue Warning

The Iowa Attorney General's Office recently issued a consumer advisory warning Iowans against falling for foreclosure rescue / loan modification scams.

For more, see Beware of “Foreclosure Rescue Scams” (A better bet: Call the free Iowa Mortgage Help Hotline at 877-622-4866).

Scam Artists Arrested At Lender-Sponsored Foreclosure Avoidance Clinic Passing Themselves Off As Bank Employees

Buried in a recent story in the Los Angeles Times is this excerpt highlighting one tactic used by some fraudulent loan modification / foreclosure rescue companies to scam unwitting homeowners seeking relief from unaffordable mortgages:

  • [S]ome fraudulent companies make it seem as though they represent banks or even the government.

  • Evan Wagner, a spokesman for IndyMac Federal Bank, said he was disturbed to see men dressed like bank executives -- with the same blue shirts and official looking clipboards -- show up at a foreclosure avoidance clinic the bank held late last year in Riverside County and approach borrowers waiting in line. "They were clearly representing themselves as bank staff," said Wagner, noting that the men were arrested.

Source: Homeowners warned to avoid foreclosure scams (As the economy declines, more con artists are preying on Southern California borrowers in trouble).

City Of Baltimore, Wells Fargo Slug It Out As Lender Seeks Dismissal Of Reverse Redlining Lawsuit

In Baltimore, Maryland, The Maryland Daily Record reports:

  • Attorneys for the city of Baltimore and Wells Fargo traded arguments in federal court about the viability of the city’s first-of-its-kind “reverse-redlining” lawsuit against the nation’s biggest consumer bank. The San Francisco-based bank has asked the judge to dismiss the case, in which the city claimed Wells Fargo systematically targeted Baltimore’s black neighborhoods and borrowers for high-rate subprime loans — a practice the city alleged is illegal under the federal Fair Housing Act.

For more, see Attorneys spar in 'reverse-redlining' suit against Wells Fargo.

See also, The Baltimore Sun: City says Wells Fargo mortgages were predatory (Bank says complaint doesn't prove that subprime loans hurt black neighborhoods).

For the lawsuit alleging predatory lending filed by the City of Baltomore, see:

Friday, January 30, 2009

Woman Probed For Taking Out $400K+ Mortgage On Friend's Home Without His Knowledge Arrested For Draining $100K+ From His Bank Accounts

In Anchorage, Alaska, the Anchorage Daily News reports:

  • Local businesswoman Samantha DeLay-Wilson knew when to expect her longtime friend's disability check to hit his bank account, and, while he was in Central America, she slipped into his house, used his checks and drained more than $100,000 from it, according to charges filed Thursday.(1)

  • Court records indicate DeLay-Wilson, 62, is also under investigation for taking out a mortgage worth more than $400,000 against a home her ex-boyfriend and friend of 12 years owns in San Francisco -- without him finding out about it for years.

For more, see Woman accused of stealing checks (FELONIES: Total was in the hundreds of thousands, records say).

(1) DeLay-Wilson was arrested and booked into jail Thursday on 16 felony counts of scheming to defraud, forgery and theft after she allegedly stole 14 checks from the friend, according to the story. The charges filed Thursday are not DeLay-Wilson's first run-in with the law. Reportedly, in 1998, she was accused of duping two Anchorage men, including one who lost his life savings, into lending her $500,000 that she would pay back with interest. She didn't. Facing up to 10 years in prison, DeLay-Wilson pleaded no contest in 1999 to a count of scheming to defraud and was sentenced to serve seven months, a police detective told the Anchorage Daily News.

Federal Law Protects Against "Due On Sale" Clauses When Inheriting Mortgage Property From Relatives

A Real Estate Mailbag Q&A article by attorney and syndicated columnist Benny Kass serves as a reminder of the Federal law that protects those who inherit a mortgaged home of 4 units or less from relatives. Specifically, it prohibits lenders from demanding that the new owner(s) immediately fork over the entire outstanding balance on the loan by exercising a "due-on-sale" clause in the mortgage, even though all the payments are current.

  • Federal law - called the Garn-St. Germain Depository Institutions Act of 1982 - protects you. [...] According to that law, a lender "may not exercise its option pursuant to a due-on-sale clause upon ... a transfer to a relative resulting from the death of a borrower."(1)


  • Congress recognized that the due-on-sale clause was unfair to many people, especially in situations [...] where you inherited the property - and the existing loan. You should send your lender a copy of [the deceased owner's] death certificate, and merely advise that you will be taking over the mortgage payments. There is absolutely nothing that the lender can do to hurt you.

For the column, see Federal law protects those who inherit homes.

(1) For the Federal law, see 12 USC 1701j–3(d)(5) - Preemption of due-on-sale prohibitions (Exemption of specified transfers or dispositions).

Miami Feds Bust Mortgage Fraud/Marijuana Grow House Operation; 10 Of 18 Homes Financed With Fraudulently Obtained Loans Used As Indoor Pot Farms

In Miami, Florida, the U. S. Attorney's Office (Fla. Southern District) announced last week the indictment of nine Miami residents(1) allegedly involved in a mortgage fraud scheme used to finance the purchase of a number of homes used in a marijuana grow house operation. An excerpt from the press release:

  • [A]s set forth in the Indictment, from on or about March 2, 2004, and continuing through about May 1, 2008, [eight of the defendants] were the buyers and sellers of real estate in St. Lucie County, Miami-Dade County, Lee County, Columbia County, and Marion County, Florida. At least ten of the houses were purchased through fraudulent mortgage applications, and after purchase, were used and maintained as marijuana grow houses. The defendants made false representations of material facts in mortgage applications, thereby causing mortgage companies to issue mortgages for the purchase of 18 houses.


  • The Indictment further alleges, on a number of the fraudulent transactions, the loan officer was defendant Magalys Fajardo, a/k/a Magalys Rodriguez, who was employed by mortgage brokers, LendAmerica Home Loans, Bluetrust Capital, and Monster Mortgage, Inc.(2) [...] The aggregate dollar amount of all loans procured fraudulently by the defendants from the mortgage lenders exceeded six million dollars.

For the U.S. Attorney press release, see Miami Residents Indicted In Marijuana Grow House, Mortgage, And Money Laundering Scheme.

Go here and go here for other posts on Marijuana Grow Houses.

(1) The indicted defendants are: Manuel Pupo, a/k/a Tata, Elieser Pupo, Serguey Pupo, Elmer Pupo, a/k/a Elmes, Maritza Perez, Noel Albanes-Gomez, Omar Cardenas, Zenaida Rodriguez and Magalys Fajardo, a/k/a Magalys Rodriguez.

(2) Reportedly, as part of the mortgage lending process, the defendants, via Magalys Fajardo, a/k/a Magalys Rodriguez, allegedly submitted fraudulent Uniform Residential Loan Applications, Requests for Verification of Employment, Requests for Verification of Deposit, IRS Forms W-2, payroll stubs, bank statements, as required by the mortgage lenders, through the mortgage broker to the lender for review and credit worthiness approval. pot grow ops beta

Thursday, January 29, 2009

NYC Man Accuses Sister Of Tricking 80-Year Old Mom Into Signing Over The Deed To Her $1.2M Home

In Forest Hills, Queens, the New York Post reports:

  • A Queens man says his sister bamboozled their elderly mother out of the deed to a $1.2 million house in exclusive Forest Hills Gardens, according to court papers. James Leong said his sister, Jean Tom, told their mother, Poy Fong Leong, 80, that the deed she was signing over was a "document designed to ensure that Mother Leong would be cared for as she got older," according to the suit filed last month in Queens Supreme Court. Tom did not comment.

Source: Bro: Sis Stole Mom's Home.

Go here, Go here, go here, go here, and go here for other posts related to deed or refinancing scams by forgery, swindle, etc.

Go here, here, here, here, here, and here for other posts on elder financial abuse. KappaDeedTheft FinancialAbuseOfElderlyAlpha

Woman, Disbarred Attorney Among 3 Charged In Theft Of Dead Grandfather's Home; Accused Of Pocketing $100,000+

Illinois Attorney General Lisa Madigan announced [last week]:

  • [W]arren Nickel, 59, of Tinley Park, Adrian Garner, 37, of Calumet Park, and Chiffon Mars, 38, formerly of the Chicago area, each face four counts of theft over $100,000 and four counts of theft over $10,000. Nickel also faces a charge of false impersonation of an attorney, and Garner faces one charge of forgery.

  • An attorney general's office investigation revealed Nickel and Garner allegedly executed a series of fraudulent documents in December 2005 as part of the sale of Jack Anderson's Chicago home after his 2004 death.

  • Mars, who was Anderson's step-granddaughter and a beneficiary of Anderson's estate, sold Anderson's property to a third-party in December 2005, without the knowledge and consent of the Anderson estate executor or Mars' co-beneficiary. Nickel served as her attorney in the transaction, even though he was disbarred from practicing law in 2004.(1)

For the Illinois AG press release, see Madigan: Three Charged With Fraud And Forgery In Real Estate Scam.

(1) According to the Illinois AG press release, Nickel and Garner face additional pending charges in a separate Cook County case based on a similar scheme in which they allegedly forged documents in fraudulent real estate transactions in an effort to put an elderly victim out of her home. Nickel is serving 30 months felony probation in Cook County for his previous conviction on five counts of forgery for stealing more than $93,000 from an estate. And in 2004, the Attorney Registration and Disciplinary Commission disbarred Nickel from the practice of law. He is also serving 30 months felony probation for a second conviction on six counts of false impersonation of a lawyer.

Section 8 Mom, 4 Kids May Face Illegal Foreclosure Eviction

In West Palm Beach, Florida, WPEC-TV Channel 12 reports:

  • It's a dire situation more and more renters are facing--losing your rental home to foreclosure. But for one West Palm Beach mother--her future looms. "If I'm not out early Friday morning than they are just going to come in and throw my stuff out," said renter Barbara Wright.

  • Yesterday when Wright opened her door she found a 48-hour eviction notice in the hands of deputies. The single mother of four is a section 8 housing tenant(1) who has rented the same house for more than five years. But last year her landlord could no longer pay the mortgage.The home went into foreclosure, now she is desperately looking for a new place to live. "I'm trying to pull a miracle out of a hat," said Wright. Meanwhile her four kids have no idea they may be homeless Friday morning.

For the story, see Single Mother and Children Losing Rental Home to Foreclosure.

(1) According to a 2007 Boston Herald story, Section 8 tenants renting homes in foreclosure have rights under federal law that prevent them from getting kicked out of a home merely because of a change in ownership, including a foreclosure:

  • Chris Norris, executive director of [Metropolitan Boston Housing Partnership, a nonprofit group that administers Section 8 housing programs for the federal government], and legal experts say Section 8 tenants have their rights - and can fight eviction attempts by new building owners snapping up properties at auctions. Under federal law, Section 8 tenants with proper leases can’t be immediately tossed out of their units because of a change in ownership, experts say.

  • Federal laws trump state laws, so (Section 8 tenants) can stay,” said Rafael Mares, an attorney at Harvard Law School’s WilmerHale Legal Services, which is helping tenants during the current foreclosure crisis. Even if a tenant’s Section 8 lease has expired, federal law requires that property owners must prove they’re being economically harmed by having a tenant remain in a building, said Mares. Non-Section 8 renters, who have also been hard hit by the foreclosure crisis, also have rights that require court approval before an eviction can take place, Mares said. But Section 8 tenants are better protected, he said. [...] But many Section 8 tenants panic and don’t fight eviction notices, not realizing they have rights, said Mares.

It may be that a lack of affordable legal counsel knowledgeable in Section 8 tenant issues may result in this family being illegally bounced out of their home. For the specific federal regulation on this point, see 24 CFR 982.310(d)(1). Go here for the regulations (24 CFR 982) regulating the Section 8 rent subsidy program, generally.

Wednesday, January 28, 2009

Lack Of Knowledge Or Partcipation In Fraud Not Enough To Sustain Bona Fide Purchaser Status In Equity Stripping, Foreclosure Rescue Deal

In a 2005 court decision, the Colorado Supreme Court, in Martinez v. Affordable Hous. Network, Inc., Case No. 04SC421, 123 P.3d 1201; 2005 Colo. LEXIS 1075 (Colo. 2005), ruled on a case involving a foreclosure rescue operator ("AHN") who was said to have acquired title to a home through fraudulent means from a financially strapped husband and wife ("Martinez"), and who then sold the home to a subsequent third party purchaser ("Troco"). Troco, as reflected in the decision, neither participated in AHN's alleged fraud, nor had any knowledge thereof. The case dealt with homeowner Martinez' attempt to undo the transactions involved by attacking subsequent purchaser Troco's asserted status as a bona fide purchaser in order to void the title transfers.(1)

The understanding between AHN and Martinez was that the former would assist Martinez in attempting to refinance the home and failing that, it would help Martinez sell the home, pay off the existing two mortgages encumbering the property, and help Martinez buy a new home with their equity from the sale proceeds.

Their agreement called for AHN to obtain an option on the property, in which it agreed to pay $9,020 to bring the mortgages current, and for Martinez to sign over a deed to AHN, to be unrecorded and placed in escrow with the understanding that the deed could be removed from escrow only after receiving written instructions from AHN and with proof that the two existing mortgages had been paid in full or would be satisfied at closing. The unrecorded deed was to serve as "protection" for AHN in the event Martinez abandoned the home after AHN paid the $9,020.

After six months, Martinez became increasingly dissatisfied with AHN's lack of communication, lack of effort to sell or refinance the home, and failure to show the couple comparable homes for purchase in the event their home sold. Martinez ultimately decided to keep the home, refinance, and reimburse AHN the $ 9,020.00 for the deficiency.

Despite the Martinez' decision, a prospective buyer representing the company, Troco, Inc., was brought over to see the home by a real estate agent, who forced her way into the home despite Martinez' protest. Within a week, Troco, Inc. agreed to purchase the property. At that point, AHN, without ever having placed the Martinez deed in escrow, recorded the Martinez' deed.

One day after recording the deed, AHN flipped its interest in the home, via a quit claim deed, to Troco, who had no knowledge of the allegedly fraudulent means used by AHN to acquire the home. Troco paid $25,000 for AHN's interest, and took subject to the existing two mortgages, without assuming any personal liability thereon.

The next day, Martinez received a letter from AHN indicating that the home had been sold to Troco. In a letter dated about a week later, Martinez was informed by Troco that Martinez had the option of repurchasing the home for $ 150,000.00 or vacating it by June 15, 2000. Martinez then filed suit.(2)

The trial court, affirmed by the Colorado Court of Appeals, ruled that Troco was the true owner of the home and quieted title in its name, and that, because it lacked any knowledge of the fraud perpetrated by AHN, was a bonafide purchaser for value and without notice of any defect in the title by reason of any claim the allegedly defrauded Martinez may have had in the home.

Martinez then filed an appeal with the Colorado Supreme Court.

In reversing the appellate court, and ruling that Troco was not entitled to the protection of the recording statutes as a bona fide purchaser, the Colorado Supreme Court made the following analysis and conclusion, which appears below in its entirety:
  • Martinez argues that the deed to AHN is void because the deed was never delivered into escrow and, consequently, the conditions precedent to the release of the deed from escrow were never satisfied. In response, Troco asserts that Martinez was fraudulently induced to quitclaim the deed to AHN and fraudulent inducement renders the deed merely voidable. Therefore, Troco asserts, it is protected as a subsequent bona fide purchaser for value, notwithstanding the agreement between Martinez and AHN to hold the deed in escrow.

  • In Part A, we begin with a review of the determinations made by the courts below with particular focus on the courts' treatment of whether Troco qualifies as a bona fide purchaser.

  • In Part B, we address whether inquiry notice was triggered by the circumstances of this case. In that latter part of our analysis, we look closely at the factual circumstances of the case to determine whether the knowledge of AHN's fraud may be correctly imputed to Troco, thereby defeating Troco's bona fide purchaser status.
Part A
  • In its order quieting title with Troco, the trial court found that Martinez had abandoned the claim for rescission and that Troco was a bona fide purchaser entitled to rely upon the deed recorded by AHN. The court of appeals affirmed the trial court on both issues.

  • In its analysis of the rescission issue, the court of appeals correctly determined that Martinez signed the deed and that material changes to the deed were insufficient to render the deed a forgery. Thus, the deed was not void and the burden was on Martinez to rescind the fraudulently procured deed prior to its conveyance to a subsequent bona fide purchaser. The court correctly determined that Martinez' failure to tender to AHN the $9,020.00 resulted in the abandonment of Martinez' right to rescind. However, because a deed voidable for fraud only protects a subsequent purchaser if the subsequent purchaser took the property for value and without notice of any defect in title, see Upson v. Goodland State Bank & Trust Co., 823 P.2d 704, 705-06 (Colo. 1992), the disposition of this case turns upon whether Troco was a bona fide purchaser.

  • In the quiet title order, the trial court found that Troco was a bona fide purchaser of the property. The court of appeals subsequently affirmed, finding that Troco qualified as a bona fide purchaser because Troco paid value, in good faith, without any notice of defect in title. Martinez v. Affordable Hous. Network, Inc., 109 P.3d 983, 2004 Colo. App. LEXIS 867 (Colo. Ct. App., 2004). Upon examination of the record, we find no error with the determination that Troco paid value in good faith. A closer examination of whether Troco took the property without notice of a defect in title, however, is warranted.

  • We have traditionally recognized three forms of notice: actual notice, constructive notice, and inquiry notice. Franklin Bank, N.A. v. Bowling, 74 P.3d 308, 313 (Colo. 2003). Actual notice occurs when a party has actual knowledge of a title defect. Id. While both "constructive and inquiry notice operate to impute knowledge to a party under certain specific conditions," we recognize them as separate inquiries. Id. at 313 n.11. Constructive notice arises where a search of the title records would have revealed a defect. See id. at 313. "Inquiry notice arises when a party becomes aware or should have become aware of certain facts which, if investigated, would reveal the claim of another." Id. However, notice will not be "imputed to a purchaser if a reasonable search would prove, or would have proven, futile." Littlefield v. Bamberger, 32 P.3d 615, 619 (Colo. App. 2001).

  • From the record below, it is clear that Troco did not have actual notice of a defect in title. It is also clear that constructive knowledge of a defect in title cannot be imputed from the record title at the time of Troco's purchase. The record title would have revealed that title was recorded in Martinez' name, but it would not have revealed a defect in the then unrecorded quitclaim deed held by AHN, or the underlying fraud used to procure said deed.

  • The trial court addressed inquiry notice only briefly during the court's oral order at trial: "This claim against them is really on the weakest thread, which is - is that at the time they went over to the house and Ms. Martinez expressed some regret about showing the house or about wanting to go through with it, that this should have put them on notice . . . . The law is not intended to ask bona fide purchasers to inquire into whether or not a manifestation of some outward response is . . . buyer's remorse."

  • At this stage of the trial, the court properly considered the facts in the light most favorable to Martinez by assuming that Troco had knowledge of the conversation between the real estate agent and JoRene Martinez. The court then found that this knowledge was not enough to give rise to a duty of inquiry.

  • The court of appeals largely adopted the trial court's conclusion that inquiry notice had not been triggered. Martinez, 109 P.3d at 988-89. The court of appeals further held that even if a reasonable inquiry had been conducted, it "would have shown that AHN possessed legitimate title pursuant to the terms of an executed option agreement and that [Martinez'] possession of the property was in accordance with this agreement." Id. at 989.

  • Both the trial court and the court of appeals concluded that even if an appropriate inquiry were conducted, such an inquiry would have led to the discovery of the option agreement, but would not have revealed the fraud of the underlying transaction. In its suggestion that an inquiry would have merely revealed "buyer's remorse," the trial court implicitly acknowledged the sales arrangement that was embodied in the option agreement.

  • The court of appeals explicitly recognized that an inquiry would have led to the option agreement: "The evidence at trial indicates that a reasonable investigation would not have revealed the fraud perpetrated by AHN. Instead, a reasonable inquiry would have shown that AHN possessed legitimate title pursuant to the terms of an executed option agreement and that [Martinez'] possession of the property was in accordance with this agreement." Id.

  • We do not find any error with the analysis of the lower courts recognizing that the option agreement would have been discovered upon reasonable inquiry. However, for reasons discussed below, we reject the conclusion of the lower courts that the facts of this case did not require reasonable inquiry that would have revealed the underlying fraud.

Part B

  • Because the court of appeals determined that an inquiry would not have revealed that the deed was voidable due to the underlying fraud, the court never fully addressed whether inquiry notice was triggered by the circumstances of this case. Mindful of the procedural posture of this case, we now examine the evidence presented at trial to resolve this issue before returning to the conclusion of the lower courts that a reasonable inquiry would have been futile.

  • Inquiry notice imputes knowledge where the circumstances are such that they would have aroused the suspicions of an ordinary purchaser. See Littlefield, 32 P.3d at 618-19. And, once there is a duty to inquire, the purchaser "will be charged with all knowledge that a reasonable investigation would have revealed." Franklin Bank, N.A., 74 P.3d at 313; see also Burman v. Richmond Homes Ltd., 821 P.2d 913, 919 (Colo. App. 1991).

  • It is well settled in Colorado that, with certain exceptions inapplicable here, possession of real estate is sufficient to put an interested person on inquiry notice of any legal or equitable claim the person or persons in open, notorious, and exclusive possession of the property may have. See Hitchens v. Milner Land, Coal & Townsite Co., 65 Colo. 597, 601, 178 P. 575, 576 (1919); Colburn v. Gilcrest, 60 Colo. 92, 94, 151 P. 909, 910 (1915); Yates v. Hurd, 8 Colo. 343, 344, 8 P. 575, 576 (1885); Tiger v. Anderson, 976 P.2d 308, 310 (Colo. App. 1998).

  • This court has found that the rule applies where "the party having and alleging possession is the plaintiff in a suit to reform an instrument which purports to vest title to the land, so possessed, in another." Hitchens, 65 Colo. at 601, 178 P. at 577. Further, where the party in possession is the sole tenant and lessee, certain circumstances may give rise to a duty to inquire as to their rights as tenants beyond mere possessory rights. See Cohen v. Thomas & Son Transfer Line, Inc., 196 Colo. 386, 388, 586 P.2d 39, 41 (1978).

  • In Cohen, we rejected the assertion that a prospective purchaser with constructive notice of the lessee's tenancy has only the limited duty to inquire about the possessory rights of the tenant. Id. The party in possession of the property in Cohen was the lessee of a commercial property which had been conveyed from the lessor/grantor to a third-party grantee. Id. at 387, 586 P.2d at 40. The lessee sought specific performance of a right of first refusal contained in the lease. Id. The lease was never recorded, and the lease term had actually expired at the time of the sale. Id. Although the purchasers were aware of the existence of the expired lease, they never asked to see the lease, nor did they question the lessee. Cohen, 196 Colo. at 387-88, 586 P.2d at 40. Under those circumstances, we concluded that a "reasonable inquiry would have included inquiry of the lessee who was the sole tenant in possession." Id. at 388, 586 P.2d at 41.

  • The present case is not dissimilar on the facts. Troco was aware that Martinez was in physical possession of the property. Troco also had a duty to inquire as to Martinez' rights as a lessee, and is deemed to have constructive notice of those rights. Id. at 388, 586 P.2d at 40. See also Cook v. Hargis, 164 Colo. 368, 376, 435 P.2d 385, 390 (1967). Here, the lease agreement was contained within the option agreement. Thus, Troco was on inquiry notice of Martinez' rights as contained in the option agreement. As in Cohen, the lessee had both tenancy and possessory rights contained in an agreement of which the purchaser had inquiry notice. Consequently, Troco had a duty under the circumstances to inquire as to both the Martinez' possessory and tenancy rights.

  • In determining that the circumstances of this transaction were sufficient to put Troco on inquiry notice, we also consider that these conveyances were made by quitclaim deeds.

  • Colorado has rejected the now disfavored notion that a quitclaim deed is enough, in itself, to put a purchaser on notice of a defect in title. Franklin Bank, N.A., 74 P.3d at 313 n.12. Although it is true that a quitclaim deed does not convey title but only that interest that the grantor has to convey, we do not find this limitation so unusual that a purchaser should, on this basis alone, be wary of the validity of this type of conveyance. However, while a conveyance by quitclaim should not automatically raise suspicion, it should not shield a transaction from scrutiny either. When a grantor chooses to convey property by quitclaim, an element of risk is imposed upon the buyer that would not otherwise be present if the conveyance were by warranty deed. Thus, although by no means dispositive, a conveyance by quitclaim is a significant factor to be considered when assessing inquiry notice. See id.

  • Here, there were two back-to-back quitclaim conveyances. Troco purchased the second quitclaim deed from AHN without conducting a title search or making any further inquiry into the transaction. Troco also purchased the property fully aware that the Martinez' two recorded mortgages had not been satisfied. It does not appear that Troco made any inquiry as to why the property remained subject to these liens. From the buyer's standpoint, this is an unusual transaction to simply accept at face value.

  • Pursuant to two back-to-back quitclaim conveyances - neither of which satisfied the attendant mortgages prior to sale - Troco purchased the property from AHN fully aware that Martinez was in physical possession of the property. We find that an ordinary purchaser in Troco's position would have been suspicious of the circumstances surrounding this transaction and should have inquired further. A reasonable inquiry would have included both an inquiry into Martinez' tenancy rights as well as into Martinez' possessory rights. Moreover, a reasonable inquiry into the tenant's rights in this case would have led, without further inquiry, to the possessory interests precisely because the lease was contained in the fraudulent option agreement.

  • Although it was not necessary for the trial court to resolve the issue of whether Troco was aware of the conversation between JoRene Martinez and the real estate agent in a mid-trial order, it is a circumstance relevant to inquiry notice. If Overton was aware of JoRene Martinez' statements to the real estate agent (i.e., her statements that they did not wish to sell their home, planned to repay AHN, and remain in the home), her statements would have put Troco on notice that there was a potential problem with the quitclaim conveyance to AHN. JoRene Martinez' statements, described by the trial court as "buyer's remorse," indicated a conflict in the ownership of the property.

  • Contrary to the trial court's legal conclusion, it is not too much to ask that a buyer make further inquiries when made aware that the person in physical possession of the property believes they are in fact the true owner of the property. When a reasonable person is made aware that someone in physical possession of property claims ownership, the prudent course of action is to make further investigations.

  • Whether Troco was aware of JoRene Martinez' statements is a relatively minor consideration in our analysis of inquiry notice in this case. That Troco knew Martinez was living in the home, especially when considered together with the quitclaim deeds and unsatisfied mortgages, created a duty on the part of Troco to inquire further.

  • As noted in Part A and in our discussion of tenancy rights, a reasonable inquiry would have led to the option agreement between Martinez and AHN. The lower courts concluded that the discovery of the option agreement would not have revealed the underlying fraud. Martinez, 109 P.3d at 989. However, upon review of the agreement, we find this conclusion in error.

  • By its express terms, the option agreement would have plainly revealed that AHN had not purchased the quitclaim deed according to the option terms. This conclusion may be drawn from Troco's averment that they took the quitclaim deed subject to the mortgages, in conjunction with the plain language of the option agreement that required that the two mortgages be satisfied as a condition precedent to the release of the deed from escrow. Given that Martinez remained liable on the mortgages and the property remained subject to the liens when Troco purchased the property, it would have been apparent that the conditions of the contract were breached by AHN.

  • In sum, a reasonable investigation would have revealed the option agreement and the underlying fraud. Hence, because Troco had a duty to inquire, we impute the knowledge of the contract breach and resultant defect in delivery of the deed to Troco. Therefore, Troco is not protected as against Martinez' claim, because Troco was on inquiry notice that the deed was fraudulently procured.


  • We conclude that the trial court erred when it found at mid-trial that Troco was a bona fide purchaser without notice. Accordingly, we reverse(3) the decision of the court of appeals affirming the trial court's quiet title order. We remand for further proceedings consistent with this opinion.

(1) In this case, there was no mortgage lender involved providing new financing for Troco's purchase. He took title subject to existing mortgages. Had Troco obtained a new mortgage to finance its purchase, and the lender failed in its duty to inquiry as to Martinez' rights in the home, I suspect the court's ruling would have been equally applicable to the lender as it was to Troco.

In addition, even in cases where there is no fraud (or no provable fraud) on the part of the foreclosure rescue operator, the same approach taken by the homeowner in this case may be available to a homeowner seeking to void the deed by recharacterizing the arrangement as an equitable mortgage. For the equitable mortgage doctrine as applied in Colorado, see generally, Beeghly v. Mack, 20 P.3d 610; (Colo. 2001).

(2) Martinez' amended complaint alleged claims of breach of contract, fraud, rescission, unjust enrichment, filing a fraudulent deed in the public record, and violations of the Colorado Organized Crime Control Act, § 18-17-104 to § 18-17-109, C.R.S. (2003), the Uniform Consumer Credit Code, § 5-1-101 to § 5-13-101, C.R.S. (2003) (UCCC), and the Colorado Consumer Protection Act, § 6-1-101 to § 6-1-1001, C.R.S. (2003). The trial court dismissed the UCCC claim on summary judgment motion and the remaining claims proceeded to trial.

Pursuant to a court order, Martinez remained in the home and continued to make all mortgage payments on the home. As part of the order, the mortgage payments are said to be the equivalent of rent. Martinez contributes to the equity in the home in exchange for physical occupation of the home and the reduction of Martinez' personal liability on the two mortgages.

(3) This goes to show that, if you're a homeowner in this position, not only do you have to be lucky enough to find an attorney to represent you who really knows what he/she is doing in this area of law, but the attorney may have to be willing to ignore, what in retrospect are, the incorrect rulings of the lower courts and appeal those decisions up the ladder until the justice system ultimately - and hopefully - gets it right. I can't imagine how many homeowners there must be who found themselves similarly situated, but were either unable to retain affordable counsel, or if represented, unable to finance an appeal of an incorrect trial court (and, in this case, an appellate court) ruling. ColoradoBonaFidePurchaserTheta

Upfront Fees For Loan Modifications In California Prohibited Once Notice Of Default Is Recorded On Home In Foreclosure

A Consumer Alert appearing on the California Department of Real Estate ("DRE") website makes clear that charging upfront fees from California homeowners for providing loan modification services is prohibited once a Notice of Default has been recorded against an owner's home by his/her mortgage lender.(1)

The alert goes on to state that, when a Notice of Default has not been recorded against an owner's home, it may be permissible for a real estate broker to assist in working out a loan modification or otherwise negotiate a possible resolution to a mortgage problem with the lender or loan servicer and seek payment in advance for their services, provided certain requirements are met.(2)

In such a case, however, the broker cannot have a homeowner sign an agreement until it has been submitted to the Department of Real Estate for review and the broker has received permission from them to use it and collect the advance fee. Permission is granted by DRE through their issuance of a “no objection” letter to the real estate broker regarding the use of the agreement.

For more, see Consumer Alert - Advance Fees and Loan Modification Services.

(1) California Civil Code Section 2945, which regulates "foreclosure consultants", forbids anyone who falls under the definition of a “foreclosure consultant”, as well as a real estate licensee, from collecting any advance fees for these types of services if a Notice of Default has been recorded against an owner's property. California licensed lawyers when rendering services in the course of their legal practice(s) are exempt from this prohibition, according to the California Department of Real Estate.

(2) Of course, this assumes that the nature of the services provided by a non-attorney is such that it doesn't constitute the unlicensed / unauthorized practice of law.

Loan Modification Firm's Instructions To Withhold Mortgage Payments From Lender During Negotiations Leaves Two Homeowners Facing Foreclosure

In Burlington, North Carolina, WFMY News 2 reports on two area homeowners who claim were screwed out of thousands of dollars from loan modification firms and, after following their instructions to withhold the mortgage payments while the purported negotiations with the lenders were ongoing, were left facing foreclosure.

For the story, see What's Worse Than Losing Your House?

CNBC On Upfront Fee Loan Modification / Foreclosure Rescue Scams

CNBC's nightly consumer finance program On The Money ran a segment last week on upfront fee loan modification / foreclosure rescue scams.

For the video (6:23), see Fraud At Your Front Door (or go here for a summary of the report).

Tuesday, January 27, 2009

B of A Gives California Congresswoman The "Telephone Bounce Around" In Her Attempt To Seek Loan Modification Help For Constituents

ABC News Nightline reports:

  • In a revealing example of what she says the average homeowner faces, a California Congresswoman spent more than two hours on the phone trying, without success, to find someone at the Bank of America who could help a struggling constituent modify his mortgage payments. ABC News "Nightline" cameras were rolling as Congresswoman Maxine Waters (D-Ca.) was repeatedly put on hold for long stretches, disconnected, transferred to extensions that did not work and ultimately switched to a recording which directed her to the bank's website.

For more, see: On Hold: Even Congresswoman Gets the Runaround on Bank Help Lines (Rep. Maxine Waters Dials and Redials Attempting to Get Help for Constituents).

Illegal Loan Modification Firms Beware

Appearing on the MortgageOrb website is, what appears to be, a press release announcing:

  • A new investigative firm has been created to contend with the growing number of illegally run loan modification and foreclosure rescue companies. MFI-Mod Squad, founded by MFI-Miami LLC head Steve Dibert, is a privately funded loan modification company based in Boynton Beach, Fla., that aims to expose companies that charge troubled homeowners large up-front fees in exchange for promising to save their homes from foreclosure.


  • Once MFI-Mod Squad completes its investigation, a report will be posted on its Web site and a copy will be immediately sent to state and federal law enforcement officials and regulators for further action.

For the press release, see New Firm Investigates Illegal Mod Companies.

Loan Modification Foreclosure Scams On The Upswing In Montana

Montana's News Station reports:

  • Foreclosure scams are becoming more frequent in Montana. That's according to Consumer Credit Counseling Service Branch Director Beverly Johnston who warns about companies that promise to get people out of a foreclosure by charging enormous fees. If a company charges an up front fee, it's most likely a scam, she said.

For more, see MT foreclosure scams becoming more frequent.

NYC Proposed Statute Would Impose Licensing-Related Requirements On Upfront Fee Loan Modification Firms

In New York City, the Brooklyn Daily Eagle reports:

  • The City Council has proposed legislation that will increase the regulatory requirements for distressed property consultants. This bill, when signed into law, will crack down on people attempting to prey upon homeowners facing foreclosure.


  • The proposed legislation would give authorities a way to determine who is offering a legitimate consulting service by requiring licensing.(1)

For more, including what else the proposed bill does, see City Tackles Those Who Prey on Homeowners (New Legislation Will Require Licensing of Property Consultants).

(1) For those loan modification firms who purport to review homeowners' loan documents in search of violations of consumer lending laws, as well as violations of other laws relating to bringing foreclosure actions, there already are licensing requirements. Such work requires a law license. Providing these so-called forensic audits of loan documents directly to the consumer without either being an attorney, or without being under the direct supervision and control of an attorney, arguably constitutes the unlicensed / unauthorized practice of law. See Unlicensed Practice Of Law Becomes An Issue With Some Loan Modification Firms.

Monday, January 26, 2009

Mortgage Servicer's Libel Suit Against "Victim" Of "Engineered" Foreclosure To Begin Today; Firm Admits Loan Was Current When Legal Action Started

In Dallas, Texas, reports:

  • On the surface, the trial scheduled to begin Monday morning in the Dallas courtroom of U.S. District Judge Jane J. Boyle is your basic libel suit. Orix Capital Markets, a $1 billion financial services company, says its reputation is being seriously damaged by allegations posted on a Web site that mocks its very name.

  • Indeed, the Web site’s shocking claims of massive fraud and deceit by a prominent member of the mortgage-servicing industry have captured the attention of high-powered attorneys and others immersed in the current foreclosure crisis.


  • Cyrus Rafizadeh, a defendant in the libel case, says the lawsuit is the work of an evil corporate giant determined to silence him, a 20-year-old law student, “computer nerd” and self-taught expert on mortgage securitization and trusts.

  • Rafizadeh says he is using his Web site,, to expose a vast scam by Dallas-based Orix, information that is directly related to the current U.S. mortgage meltdown and is of vital interest to investors, regulators and taxpayers.


  • The libel suit was filed as a counterclaim to a 2006 suit against Orix by a company called Super Future Equities, in which Cyrus Rafizadeh was a corporate officer. SFE owned shares in the securitized mortgage trust that held the loan on his family’s foreclosed apartment complex. Rafizadeh said much of the material in SFE’s lawsuit, which was dismissed by Judge Boyle in December 2007, was the fruit of his thousands of hours of research into Orix, the mortgage-servicing industry, real estate trusts and the securitization process.(1)

For more, see Libel trial begins over mortgage scam charges (Current showdown is latest chapter in 8-year, Texas-sized legal drama).

(1) According to the story, Rafizadeh told that he became interested in the topics after Orix foreclosed on the family’s Louisiana property. Orix, “engineered the default because they figured out you make more money in foreclosure and default than if the borrower makes all the principal and interest payments,” which his family was doing, he reportedly said to

The story further reports that Orix attorney Greg May acknowledged to, as noted by Cyrus Rafizadeh, that principal and interest payments were not in arrears when Orix foreclosed on the Louisiana property. “The monthly payments of principal and interest were being made but there were big deferred maintenance and life-safety issues on the property,” May reportedly said. “It was a slum and they were running it as a slum.” A state court judge agreed with Orix that the Rafizadehs had failed to maintain the property as required by the loan and, further, ruled that fraud had been committed in obtaining financing for its purchase, according to the story. In 2004, the court entered a judgment of nearly $11 million for Orix.

Faulty Service Of Process In Tax Foreclosure, Failure To Investigate Rights Of Persons In Possession Leaves Unwitting Buyer Empty Handed

A 2006 decision of a New Jersey trial court provides another example of the problems a foreclosing creditor causes for itself and others when it chooses to serve delinquent property owners with notice of a foreclosure action by publishing a legal notice in a local newspaper (ie. known as constructive service - service by publication) without first making a diligent search and inquiry of the names and the whereabouts of the property owners, thereby establishing that face-to-face service (ie. known as personal service) upon the property owners is not possible.

The case also addresses the problems a property purchaser has when asserting bona fide purchaser status when it buys property that is occupied by someone other than the seller, and fails to inquire as to the nature of the rights of the occupants in the home.

In I.E.'s, L.L.C. v. Simmons, Docket No. F-13336-03, 392 N.J. Super. 520; 921 A.2d 483; 2006 N.J. Super. LEXIS 352 (Sup. Ct., Law Division, Middlesex Cty. 2006), the court decided to void a tax foreclosure in which property worth $275,000 was acquired by the holder of a tax sale certificate for the balance of $ 22,837.50 that was owed to the certificate holder and unpaid by the property owners.

An initial complication in this case was that the owner of record of the home passed away before commencement of the foreclosure process. After an attempt to locate the heirs (an attempt that the court ultimately decided was unsatisfactory for reasons set forth in the opinion), the certificate holder was able to locate and give personal service to one of the heirs, the deceased owner's daughter (the executor of the estate), and gave service by publication to the remaining unknown heirs (it turns out there were three others, also children of the deceased owner; it also turns out that all four heirs were living in the home that was the subject of the tax foreclosure - apparently neither the certificate holder's attorney nor the process server ever bothered to carefully investigate who exactly was occupying the home).

A second complication in this story is that the certificate holder, after acquiring title to the property, but without evicting the home's occupants, sold the premises for $275,000 to a subsequent purchaser who had no knowledge of the earlier defects in serving the tax-delinquent homeowners with notice of the foreclosure action.

Despite assertions from the subsequent purchaser that he was a bona fide purchaser without any knowledge of the problems with the tax certificate holder's failure to properly notify the heirs, the court vacated the judgment of foreclosure on the tax sale certificate in order to allow the heirs an opportunity to redeem the property.(1)

In articulating the New Jersey law it applied to this case, the court made a number of observations. With respect to the use of service by publication and the faulty service of process, generally, it said:

  • As a result of the limitations in service by publication, enhanced notice is required in a variety of proceedings. New Brunswick Sav. Bank v. Markouski, 123 N.J. 402, 418, 587 A.2d 1265 (1991). Due process of law demands that a person be given adequate notice of a tax sale before the person's property can be forfeited. Jones v. Flowers, 547 U.S. 220, 126 S. Ct. 1708, 1712, 164 L. Ed. 2d 415, 423, 430 (2006).[(2)] When notices sent to the property owner were returned as undelivered, additional reasonable steps were required under due process of law to notify the property owner of the sale. In a tax foreclosure sale, service by publication and posting does not meet due process requirements where the defendant's name and address are "reasonably ascertainable." New Brunswick Sav. Bank, supra, 123 N.J. at 418-19, 587 A.2d 1265 (quoting from Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 800, 103 S. Ct. 2706, 2712, 77 L. Ed. 2d 180, 188.)

  • New Jersey law recognizes that if personal service is defective, a judgment is deemed void and may be set aside under R. 4:50-1(d). Jameson v. Great Atl. & Pac. Tea Co., 363 N.J. Super. 419, 425, 833 A.2d 626 (App. Div. 2003). In that circumstance, the judgment may be vacated pursuant to R. 4:50-1(d) without the necessity of showing a meritorious defense. Ibid. In light of this law, the service upon the three heirs must be investigated.

  • Three of the four heirs were not personally served. Rather they were served by publication pursuant to R. 4:4-5. This rule permits service in an in rem or quasi in rem action by publication upon a defendant where the defendant cannot be served. Ibid. As noted above, the law recognizes that, realistically, service by publication is unlikely to reach the intended parties. As a result, "[s]ervice by publication is hardly favored and is the method of service that is least likely to give notice." M & D Associates v. Mandara, 366 N.J. Super. 341, 353, 841 A.2d 441 (App. Div. 2004) (citations omitted). Before a party may resort to this form of service, the rules, consistent with the constitutional law noted above, require that the party make a diligent inquiry to ascertain the person's identity. R. 4:4-5 and R. 4:26-5(b).
With regard to the subsequent purchaser's duty, as a bona fide purchaser for value, to inquire as to any possible adverse claims to the title to the home, given the relevant facts and circumstances with regard to the property, the court said:
  • In addition, the bona fide purchaser for value purchased the property knowing that the property had gone through a tax sale foreclosure. This circumstance placed on it further steps when examining title. [...] In addition, the fact that three unnamed heirs were served solely by publication also should have alerted the purchaser to the potential of notice problems.

  • Further, and most significantly, the bona fide purchaser for value took title to the property knowing that the defendant family in the tax sale foreclosure action was still in possession of the premises. New Jersey law has long recognized that a bona fide purchaser for value of real estate who purchases the property knowing others are in possession of the property has a duty to make reasonable and diligent inquiry of the rights to the property by those in possession. Hinners v. Banville, 114 N.J. Eq. 348, 168 A. 618 (E. & A.1933). Hinners is a mortgage foreclosure case where owners were served by publication. The property was sold at a sheriff's sale and then purportedly sold to a bona fide purchaser for value. The sale to the bona fide purchaser for value was set aside since the family was in possession of the property, and the court held that the bona fide purchaser for value had a duty to make a reasonable investigation of the rights of the party in possession. Id. at 356-57, 168 A. 618. See also, Michalski v. U.S., 49 N.J. Super. 104, 108-09, 139 A.2d 324 (Ch.Div.1958).(3)

For the court decision, see I.E.'s, L.L.C. v. Simmons, Docket No. F-13336-03, 392 N.J. Super. 520; 921 A.2d 483; 2006 N.J. Super. LEXIS 352 (Sup. Ct., Law Division, Middlesex Cty. 2006) (may require free registration with LexisOne).


For another New Jersey court decision involving the voiding of a tax foreclosure due to improper use of the service by publication method of serving notice of the legal action to the homeowner, see Arianna Financial Company, LLC v. Lopez, Docket No. A-1448-07T11448-07T1 (N.J. App. Ct. unpublished, per curiam, Sept. 25, 2008).(4)


Cases available online courtesy of Rutgers University School of Law's New Jersey Courts Search Page, LexisOne Free Case Law,, and Justia & Oyez U.S. Supreme Court Cases.

Go here for other posts on foreclosures involving faulty notifications to property owners.

(1) The subsequent purchaser, who paid $275,000 for property he is being forced to relinquish by the court, hopefully, for his sake, obtained a title insurance policy when making the purchase. In that event, the title insurer may find itself in the position of having to indemnify the subsequent purchaser for his loss, afterwhich it can go after the tax certificate holder to recover the balance of the $275,000 purchase price.

(2) Jones v. Flowers is a case in which the lawyers at the public interest group Public Citizen Litigation Group successfully challenged the lack of notice of a home foreclosure. Go here for the links to related court documents in Jones v. Flowers filed by the Public Citizen attorneys with the U.S. Supreme Court.

(3) Go here for more on New Jersey Bona Fide Purchaser, Possession, Duty To Inquire.

(4) Other cases reported in this blog and/or the companion blog in which defects in service of process on a homeowner resulted in the voiding of a foreclosure judgment and/or a foreclosure sale:

California Appeals Court Affirms $280K Damage Award For Homeowner In Sale-Leaseback Foreclosure Rescue Deal

A November, 2008 decision by a California appeals court affirmed a lower court ruling that awarded a homeowner facing foreclosure monetary and exemplary damages in the amount of $280,000 (plus the homeowner's legal fees) from one, Marshall, a real estate broker and foreclosure rescue operator to whom she sold her home in a sale-leaseback arrangement which violated the California Home Equity Sales Contract Act ("HESCA").(1)

The sole issue that Marshall argued, unsuccessfully, to the appeals court was that the statute did not apply to him. He asserted that the law only applies to what it defines as an "equity purchaser" and argued that he fell under the exceptions to an "equity purchaser" as set forth in section 1695.1, subdivision (a)(4) and (5).

With respect to the alleged violations of HESCA, the lower court found that Marshall violated section 1695.6, subdivisions (a), (b)(3), and (e), a finding that Marshall did not contest on appeal.
The following is a synopsis of the facts of the case. For more of the specific details, and the court's reasoning in ruling that HESCA applied to Marshall and that he didn't fall within one of the exceptions in the statute, refer to the link below for the court decision.

  • In August, 2004, the homeowner and Marshall entered into a sale-leaseback arrangement that included an option to repurchase. The sales price was $220,000; the leaseback called for a one year lease at $1,500 per month; the repurchase option called for a buyback price of $260,000 at any time between October 2004 and September 2005;

  • Before closing, Marshall flipped the contract to a business associate, Lisa Sanderson, who then closed on the sale with the homeowner and obtain mortgage financing to pay off the existing loan on the home. Sanderson indicated on the loan application that she intended to occupy the property as her second home. Both Sanderson and Marshall admitted at trial that they knew this statement regarding Sanderson's intent to live on the property was false;(2)

  • The homeowner found herself financially unable to fulfill the payments on the lease, and was financially unable to exercise her option to buy at the end of the lease;

  • After expiration of the option, Marshall wrote to the homeowner and asked her if she would be willing to repurchase her property for $315,000. The homeowner said that she could not pay that much; Marshall then listed the property for sale for $369,950;

  • In October, 2005, Marshall served the homeowner with a 60-day notice to terminate the tenancy. Spencer served a notice of rescission;

  • In December, 2005, the homeowner filed her initial complaint against Marshall and others, alleging violations of HESCA; in January, 2006, an action for unlawful detainer to evict the homeowner was filed; in March, 2006, the trial court consolidated the unlawful detainer action with the homeowner's HESCA action; in November, 2006, the court ordered the trial bifurcated with a bench trial of the HESCA claims to be heard first;

  • On August 16, 2007, after hearing the testimony and arguments, the trial court issued its statement of decision. The court rejected the argument that HESCA did not apply. The trial court noted that Marshall and Sanderson could not both be equity purchasers. It determined that Marshall, not Sanderson, was liable for the violations of HESCA because he was the person who structured the terms of the transaction and had the primary dealings with the homeowner regarding the property. The court found that Marshall violated section 1695.6, subdivisions (a), (b)(3), and (e).(3)

  • The trial court awarded her monetary damages against Marshall in the amount of $280,000, representing the sum of actual damages of $70,000 and exemplary damages of $210,000.(4) Pursuant to a stipulation of the parties, the award was reduced by $27,300 for unpaid rent, for a net recovery of $252,700. Despite finding no liability for the purposes of a damages award against Sanderson and IRES, the court concluded that they were necessary parties to the action given the alternative remedies available and therefore it found the homeowner to be the prevailing party against all of defendants for the purpose of awarding attorney fees. Subsequently, the unlawful detainer complaint against the homeowner was dismissed.

  • On November 24, 2008, the California Court of Appeals filed its decision affirming the trial court.

For more, see Spencer v. Marshall, 168 Cal. App. 4th 783; 85 Cal. Rptr. 3d 752; (Cal. App. 1st App Dist. Div. 2, 2008) (pdf file; go here for ".doc" file) (case available online courtesy of - may require free registration).

(1) Section 1695 through 1695.17, California Civil Code.
(2) There were false statements on a mortgage loan application in a foreclosure rescue transaction??? How common is this???
(3) Included in the appellate court decision is the following quote from the trial court:

  • “In sum, the evidence presented at trial shows that Marshall, through his contacts at DirectLender, was looking to find people in financial distress, in particular, homeowners in bankruptcy like Spencer. Despite Marshall's reluctance at trial to admit that at the time he entered into the transaction with Spencer he knew that a notice of default had been recorded against the property, the court has no doubt that Marshall was fully aware that he was buying Spencer's residence on the eve of foreclosure and that he used this circumstance to his own advantage to get a price well below market value. Moreover, even though Marshall knew that Spencer had come to him because she had been unable to qualify for a $ 220,000 loan, he misled her into believing that by selling the property to him and getting out of bankruptcy, she could then afford, with his help in obtaining financing, to buy back her home. At least as to their dealings with Spencer, defendants were in every respect the ‘archetypal predators’ that HESCA seeks to regulate.”

(4) The trial court set forth three possible remedies and Spencer chose monetary damages against Marshall. Other options that Spencer rejected were rescission of the purchase agreement and restoration of title to the property to Spencer, subject to an equitable mortgage to Innovative for the sum of $ 202,827.

An interesting note is that between August, 2004, when the homeowner and Marshall oringinally entered into the transaction, and August, 2007, when the trial court issued its ruling, the real estate market in California and elsewhere tanked. I suspect that this fact may have played a part in the homeowner's decision to grab the $280K monetary award, and pass up on getting back her home, subject to the $203K equitable mortgage that would have left her considerably less equity than the amount of the damage award.

Ohio AG Files Civil Charges Against Upfront Fee Loan Modification Firms Offering Help To Homeowners Facing Foreclosure

From the Ohio Attorney General's Office:

  • Ohio Attorney General Richard Cordray has filed a lawsuit against two Cincinnati-based foreclosure rescue companies accused of failing to deliver on their promises to save consumers from foreclosure. The suit, filed in the Hamilton County Court of Common Pleas, charges Foreclosure Assistance USA, Inc. (FA USA) and American Foreclosure Professionals, Inc. (AFP) with several violations of Ohio consumer protection law.(1)

  • "These companies have been sending direct-mail solicitations that specifically refer to the foreclosure lawsuit an individual consumer is facing by its unique case number," said Attorney General Cordray. "The companies said they could offer immediate assistance in saving the consumer's home from foreclosure, but they failed to do so. They promised work-out agreements, but did not deliver."

For more, see Foreclosure Rescue Companies Sued for Deceptive Practices.

(1) According to the story, the lawsuit charges the companies with violating Ohio's Consumer Sales Practices Act, Credit Services Organization Act and Debt Adjusters Act. The Attorney General's Office currently has four unresolved complaints against AFP, with damages ranging from $700 to $900 each. The office also has four unresolved complaints against FA USA, with alleged damages between $900 and $1200 each.

Sunday, January 25, 2009

Florida Foreclosure Defense Attorney Draws Overflow Crowd For One-Day "Boot Camp" In Tampa

In Tampa, Florida, The Tampa Tribune reports:

  • Millions of homeowners across the nation have been sued by lenders who seek foreclosure. Their biggest cheerleader may be April Charney. The lawyer with the Jacksonville Area Legal Aid agency wants to shout from the top of her lungs that every one of them - regardless of circumstance - should fight back. Problem is, she said, there aren't enough lawyers who take these cases, and many don't have enough training to be successful.


  • On Thursday, Charney spent the day with 200 lawyers and other real estate professionals. Part of her requirement for the one-day, boot-camp-style training: 20 hours of pro bono service. "I've been drafted for this work," she said of her position with the legal aid group, which represents low-income clients for free. "I'm trying to train other recruits."


  • Catherine Peek McEwen, a U.S. bankruptcy judge in Tampa, attended and said she wants to gain a better understanding of foreclosure law. "I think the learning curve was up a notch for the Tampa Bay area," she said. "The state court judges are going to have more to chew on if these lawyers get in front of them."

For more, see Lawyer Provides Foreclosure Arsenal.

Lawyer On Trial Accused Of Placing Phony $160K Mortgage On Employee's Home Forces Mistrial; Fires Defense Attorney, Then Claims Depressed Mental State

In Barrie, Ontario, The Barrie Examiner reports:

  • After just two days at trial, a Barrie lawyer facing criminal charges has insisted he can't go on with his trial because he is depressed and mentally unstable, a court heard yesterday. "I'm not operating on all cylinders," Myles McLellan said.

  • McLellan, 55, [...] began his jury trial this week to face eight criminal charges, including forgery and criminal breach of trust in connection with a false mortgage scheme.(1)


  • His jury trial began [last] week, but after the first witness testified, McLellan suddenly dismissed his lawyer, Eginhart Ehlers. [...] Under lawyer-client privilege laws, he is not obliged to tell the court why. "I can't possibly go ahead," he said. "We are talking about my life here. I've got to assert my rights."

  • After his lawyer was gone, McLellan then asked the judge for a mistrial, stating he could not represent himself because he is "heavily medicated" and emotionally unstable. [...] In the end, Justice Jane Ferguson said she had to declare a mistrial and sent the jury home. "I know the Crown and the police have put tons of effort into this case," the judge said. "But this could aggravate his mental condition. We all know mental illness is a serious problem."

For more, see Mistrial declared in fraud trial (Crown doesn't buy suspect's argument).

Go here for related posts on this story.

(1) Reportedly, The Crown claims McLellan fraudulently registered a $160,000 mortgage against the home of one of his employees without the knowledge or consent of that employee. McLellan was arrested in September 2006 and has been out on bail ever since. KappaDeedTheft

Kansas Feds Nail Two In Upront Fee, Fractional Interest Deed Transfer Rescue Scam; Bogus Bankruptcy Petitions Filed To Stall Foreclosure Actions

The U.S. Attorney's Office in Topeka, Kansas announced:

  • [Isaac Yass, 42, and co-defendant Robert Andrew Blechman, 39, both of Los Angeles, California] have been convicted of running a scam in which homeowners who were behind on their mortgage payments paid them to hold off foreclosure by filing fraudulent bankruptcy petitions.

According to the U.S. Attorney press release, evidence showed that:

  • Yass solicited homeowners who were going through foreclosure proceedings. He told them that for a fee he could help them keep their houses.

  • The defendants filed fraudulent bankruptcy petitions in federal bankruptcy courts in Topeka, Wichita and Kansas City, Kan. The petitions were filed in the name of nonexistent individuals with businesses that claimed to be part owners of properties that were in foreclosure.

  • The result was an automatic stay in the foreclosures, halting any further actions by creditors against the properties.

The Feds also alleged:

  • The defendants used the U.S. Postal Service to deliver fraudulent petitions to the bankruptcy court. The petitions contained false names and Social Security numbers, and addresses for the creditors that were in fact mailboxes or UPS Store locations in Kansas.

For the press release, see Los Angeles Men Convicted On Charges Of Filing False Claims In Kansas Bankruptcy Courts (Isaac Yass claimed that for a fee Stopco could keep homeowners in foreclosure from losing their homes).

For a report issued by a California Federal Bankruptcy Court task force detailing the types of foreclosure scams involving the abuse of the bankruptcy courts, see Final Report Of The Bankruptcy Foreclosure Scam Task Force (available online courtesy of the Loyola of Los Angeles Law Review).

Go here for other posts on fractional interest deed transfer, foreclosure rescue bankruptcy scams. loan modification

Civil War Amongst Interest Holders Of Securitized Mortgages May Be On Horizon As Investors Begin To Fight Over Foreclosure, Loan Modification Issues

In Boston, Massachusetts, The ABA Journal reports:

  • A default on debt tied to Boston’s John Hancock Tower highlights the kind of legal fights that will likely break out among investors who have varying rights to repayment after property foreclosures.

  • When mortgages are pooled and securitized, the investors purchase bonds that are grouped by payment priority known as tranches. Those with the lowest risk are first in line for payment if some of the receivables go into default. Once they are paid, those at the next risk level have a right to payment, and so on down the line in a “waterfall” of cascading payments.

  • In the Hancock Tower dispute, investors who believe they will be in the money because of more senior rights to repayment are seeking an immediate foreclosure, the Wall Street Journal reports (sub. req.). Those with lesser rights believe that declining real estate values mean they won’t get paid after foreclosure. This group is instead urging extended time for repayment of the debt, the story says.

  • The securitization agreement anticipated a fight over foreclosure decisions, and provided that the most junior creditor still in the money has the right to decide whether to foreclose. But the creditors are arguing over which one meets the agreement’s definition of “controlling holder” with the right to make the foreclosure decision, the story says.

  • John Zizzo, a real-estate lawyer at Cadwalader, Wickersham & Taft, told the Wall Street Journal that the mortgage crisis is bringing the legal issues to the fore. "Tranche warfare is starting," he said. "It has never been tested before this current market meltdown."

Source: Mortgage Meltdown Results in ‘Tranche Warfare’

For The Wall Street Journal story, see Hancock at Center of 'Tranche Warfare' (subscription required; those without a subscription, go here for a copy & pasted version of the entire story).

For more on the trouble facing the Hancock Tower, see: